Revocable living trusts need to own your assets, or the primary reason for a revocable living trust, probate avoidance, isn’t going to be achieved. Assets need to be retitled in the name of the revocable living trust. Each type of asset has a specific procedure that needs to be followed to “get it into the revocable living trust.”
Vehicles (cars, trucks, boats, airplanes, RVs, etc.) need to be owned by your revocable living trust, so they are not subject to probate after your death. (Of course, this applies to Mom and Dad’s trust also.) The question is how do you fund a revocable living trust with a vehicle?
If you try to change the title on your car from your name to the name of your revocable living trust, the state’s department of motor vehicles has this funny idea that you have sold the car, and they want a sales tax. Some states will recognize that you are changing the title to your revocable living trust, and it’s not really a sale of your vehicle, so you can call and check.
All states have a “work around” where a vehicle can be transferred after the death of the owner without a big probate proceeding. It’s better to have your vehicle in the trust than rely on the work around, but it probably isn’t worth paying the sales tax to get a vehicle you now own into your revocable living trust.
Obviously, the next vehicle you buy should be titled in your revocable living trust at the time you purchase the vehicle. But, what about putting the vehicles you own now into your brand new revocable living trust? I recommend to my clients they take the chance that they will sell their current car and get a new one before they die. Just remember to put the next one in your revocable living trust.
Revocable Living Trust Vehicles and Insurance
What about auto insurance when you put your vehicle in your revocable living trust? Insurance is always an issue when you hold a vehicle in a name other than your own. The biggest problem comes when people get the bright idea that their little company should own their vehicles. The idea is to have the company own the vehicles and let the company “write off” the vehicles for tax advantages.
People forget about the insurance when they transfer their auto into a company or have the company buy the car outright. They use the vehicle as a business vehicle and a family vehicle. When there’s an accident with the vehicle and it is being used as a family vehicle, there won’t be any insurance coverage, if the company has purchased the insurance.
On the reverse side of the coin, most people transfer the vehicle into their company and continue to carry a “personal” insurance policy on the vehicle. A “business” insurance policy is substantially more expensive than a “personal” policy. The problem is when the insurance company figures out that the vehicle is owned by a company, they have no intent of covering an accident, and they don’t have to. The short story is the insurance coverage has to match the ownership and actual use of the vehicle, or there isn’t any coverage.
Transferring your vehicle or titling it in the name of your revocable living trust, shouldn’t have any effect on your auto insurance. The car is still your “personal” vehicle as far as the insurance company is concerned. The revocable living trust is “invisible” to the insurance company. By law, a revocable living trust is “you” as far as the insurance company, tax man, and everybody else is concerned.
Revocable Living Trust Property Tax Issues
My son recently bought a $35,000 car in Virginia and had it titled in the name of his revocable living trust, which is exactly what he should have done. When property tax time rolled around he got a bill for over $8000 in property taxes. The state said since it was not in his name the car must be a commercial vehicle – more tax – a lot more tax.
It took the standard fight with the government bureaucrats to convince them it was a revocable living trust and had to be taxed as if the trustee owned the vehicle outright. I think he is the only one who has had a problem out of the thousands of cars I am aware of that have been bought in an revocable living trust’s name. So, don’t be afraid to use your revocable living trust.
Information on living trusts and much more can be found in my newly updated book, Protecting Your Financial Future. It covers, wills, trusts, taxes, business structuring and much more. Check it out HERE.
By Lee Phillips