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. For the trust to own the assets, they 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.
Revocable Living Trust Owned Vehicles
Vehicles (cars, trucks, boats, airplanes, RVs, etc.) need to be owned by the revocable living trust so that they are not subject to probate. (Of course, this applies to mom and dad’s trust also.)
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? If you try to change the title on your car from your name to the name of your revocable living trust, some states’ department of motor vehicles have the funny idea that you have sold the car, and they want sales tax. Other 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 call and check.
If they do state they want the sales tax, don’t panic! 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 isn’t worth paying anything to get a vehicle you already own into your revocable living trust.
I usually recommend to my clients to take the chance that they will sell their current vehicle and get a new one before they die. Just remember to put the next one in your revocable living trust. This does not affect your liability (see http://www.legalees.com/cars-in-trusts/).
Revocable Living Trust Owned Vehicle Insurance
What do you need to do 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 often forget about their insurance when they transfer their auto into a company or have the company buy the car outright. They use the vehicle both as a business vehicle and a family vehicle. This is a problem when there’s an accident while it is being used as a family vehicle, as there won’t be any insurance coverage if the company has purchased the insurance.
On the other hand, 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. This is a problem when the insurance company figures out that the vehicle is actually owned by a company, so they have no intent of covering a family accident because 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. A 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 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 and so needed to pay more tax – a lot more tax.
It took the standard fight with the government idiots 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 PhillipsUpdated for grammar and clarity, May 1, 2014