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10 May 2013

Revocable Living Trust Owned Vehicles

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

09 Nov 2012

Intestate Inheritance

Tags: esate planning, intestate, intestate inheritance, probate, trust, Will
Posted in Asset Protection Trusts, Estate Planning Basics, Estate Planning Tips, Trusts, Wills | Leave a comment

Intestate Inheritance Is the Way the State Divides Property

Intestate inheritance does not mean that you will inherit something from someone who lives in another state. Intestate inheritance means that you inherit from a relative who dies without a valid will or a trust and owns property. When someone dies without a will, the state’s default statutory scheme, intestate succession takes over.

Whenever there is an intestate succession, there will also be and intestate inheritance. The state provides for disposition of the intestate decedent’s assets through the court system. The judge will look at the state’s laws and will then appoint an estate administrator and tell him or her how to give out the property. Whenever a person dies without a will and has no relatives to get his intestate inheritance his property “escheats” or goes to the state.

Many people define intestate as someone who is poor and dies unprepared owing others money. This is more realistic than it sounds. This is because those who fail to put a proper estate plan in place are often those who also fail to manage their financial affairs and taxes throughout life. There is also an added bonus that a good estate plan helps folks better manage their finances and save on taxes. Not putting an estate plan in place truly handicaps a person and proper estate planning is the best way to avoid intestate inheritance problems. The lesson is that estate planning is important.

Intestate Inheritance can be a Time Consuming and Costly Problem.

A mother and daughter came into my office a few years ago. Their ex-husband and father had recently passed away. He was not a wealthy man. When he died, he had no other family members he died intestate with no will or trust. All he had was a small life insurance policy and a piece of land and a trailer that he lived in located in another state.

The poor daughter received his intestate inheritance. She had to help with the disposition of her father’s life insurance and property in our state and then go to the neighboring state for the disposition of his trailer. The property located in our state was governed by our state’s intestacy statutes. The other state’s intestacy statutes governed the disposition of the trailer home. She had to hire a different attorney in each state. The mother commented that it was not worth her daughter’s time, but that she felt trapped into taking care of her father’s estate.

It is important that everyone get their estate planning in order. My book, Protecting Your Financial Future, shows you the many benefits. Read this book and avoid leaving an intestate inheritance, and also get the peace of mind that being prepared gives.

05 Nov 2012

Die Intestate-Reasons It’s Not Good For Your Estate

Tags: esate planning, estate planning, intestate, intestate inheritance, probate, trust, Will
Posted in Wills | Leave a comment

To die intestate doesn’t mean dying in the neighboring state or dying without any assets. Dying intestate means to die without a valid will or a trust. A will is the legal instrument that tells the judge how the decedent wishes his/her property or estate to be distributed and who they would like to administer the estate. When someone dies intestate, the court will make those decisions for them. Proper estate planning is the best way to avoid dying intestate and the estate problems that come along with it.

For most people the word estate planning conjures up the term “will” or maybe “trust.” They think that it is only something done late in life to prepare for death. For someone to die intestate is the mark of someone who dies unprepared. This happens much more often than it should. The reality is that putting a proper estate plan in place can truly be beneficial for managing a person’s financial affairs and taxes throughout life. It really handicaps a person financially if they fail to put an estate plan in place.

Why People Die Intestate–Without Proper Planning

Let’s face it, if you ask people, most individuals figure they can do a better job of distributing their property and picking an administrator than the state can. So if this is the case, why do so many people die intestate? Some avoid the legal system because it is expensive and time consuming. Others think that if they don’t have a will they will avoid the legal system all together. Many don’t want to go to the effort to get their affairs in order and feel that they really don’t care what happens after they die. For most it is a matter of education. They really don’t understand the benefits that come with estate planning both during life and when they die, so they avoid estate planning out of fear and end up dying intestate.

I know it’s a hard decision for someone to make decisions regarding aspects of their estate plan. A woman came into my office to complete her estate planning ten years ago. I asked her who she wanted to be guardians for her children. She told me she would call me. I never heard from her. I had my secretary try to get the information, but the woman never responded. Ten years later she showed up in the office to finish her estate planning. Her children were raised and she no longer had to decide on a guardian.

We finished the documents and she will not die intestate, but I have wondered about what would have happened to her children if she hadn’t done this important work. If she had a hard time choosing guardians, could the judge have done better? Not only that, but this woman missed ten years of tax and financial advantages that having a good estate plan in place could have given her family.

It is important that everyone gets their estate planning in order. There are so many benefits. Not only do they avoid dying intestate, there is of course the peace of mind that being prepared gives. They will also have a better plan for living.

20 Sep 2012

How to Avoid Probate in Every State

Tags: avoid probate, living revocable trust, living trust, successor trustee, trust, trustees, Trusts, Will, wills
Posted in Estate Planning Basics, Estate Planning Tips, Probate, Trusts | Leave a comment

Avoid Probate

(Avoid Probate – This is a small subchapter on how to avoid probate from my book Protecting Your Financial Future.)

Here is how to avoid probate. When your bank account is owned by your trust, i.e., it is in the name of your trust, and you die, did the owner of the account die? No, you, the trustee, the manager of the account died. The trust, that is the owner of the account, did not die. Will the account be probated? No! The owner isn’t dead. Just the manager is dead. When the president, the manager, of IBM dies, does IBM have to probate all of its assets? No, the stockholders get together and elect a new president. That’s the way to avoid probate.

When you open the account at the bank in the name of your trust, the bank lets you open the account, recognizes your trust and agrees to recognize the trustees named in your trust. Of course the trust document has a section in it that appoints a new trustee, the “successor trustee,” to act when you are dead. There is no probate. In your trust trust you specify who you want as your successor trustee. It can be your wife, husband, mother, daughter, friend, etc. If you choose Uncle Harry, then designate him as the “successor trustee.”

Avoid Probate Example #1

OK, let’s say you are married and both you and your spouse die in an automobile accident today. What happens at the bank? Uncle Harry walks into the bank tomorrow, and the conversation with the banker goes something like this:

Uncle Harry: Hi Mr. Banker. John and Mary were killed in an automobile accident last night.

Banker: Yeah, I read about it in the newspaper. Too bad!

Uncle Harry: I need to get into the bank account.

Banker: Drop dead, buddy. Go get me a probate order. I’ll see you in a year and a half.

Uncle Harry: No, this is a trust account.

Banker: Oh, yeah.

The banker goes into the back room to get the file. When you opened the account, the banker may have made a copy of all or part of the trust. Usually the banker doesn’t actually want a copy of all the pages in your trust. It’s best to supply the banker with a certification or summary of the trust from your attorney or argue that the banker only needs a copy of the first and last pages, just to reference the trust. (When you have an attorney draft your trust, ask if a certification of the trust document is part of the deal.) If Uncle Harry has a copy of the death certificate and the trust, or the banker has his own copy of the trust, the banker will know Uncle Harry is the new trustee. The banker will ask for Uncle Harry’s identification and simply say, “sign here.” You will avoid probate.

Uncle Harry is into the bank account. No court order. No lawyer. No two year wait. No probate! When you died, there was an instantaneous transfer of power to the new trustee.

Oh, the money isn’t Uncle Harry’s now. It still belongs to the trust and Uncle Harry is now under the sacred fiduciary duty to follow your instructions and manage or distribute the property exactly according to the instructions you left behind in the trust.

You just eliminated probate. It was a slam dunk, but most people who get a living revocable trust never understand what you now have learned. You have to know why the trust works. The trust has to own the property. Most people forget to open the new checking account in the name of their trust, or they never change their existing checking account into the name of the trust. They are under the false impression that just because they have a piece of paper called a trust, they will not go through probate. You have to use the trust.

Avoid Probate Example #2

In 1976, Kristy’s parents spent in today’s dollars about $8,500 for a living revocable trust, and they happened to get a good document. When I started to work with living revocable trusts in 1981, I looked at their trust. Although they had a good document, it would not have let their family avoid probate when they died.

The lawyer had not taught them how to use the trust. Just having a trust and understanding it isn’t enough. You have to USE your trust to avoid probate. I had to go back and teach them how to put the bank accounts and real estate into the trust.

Actually, the lawyer who drafted their trust had made out a new deed transferring their house into the trust, and he had sent a letter to the bank notifying the bank that a trust had been created. These were steps in the right direction, but Kristy’s parents had bought more real estate and opened all new bank accounts. None of the new real estate or bank accounts were in the name of the trust. If they had died, everything would have gone through probate.

The goal of my book is to give you the information you need to draft your own living revocable trust and avoid probate, using two or three good form books. Or you can pick a good lawyer and get it done. Whatever you do to get it done is OK by me. But I have to stress that just getting an understanding of the trust really isn’t enough. You have to really go through the steps to use the living revocable trust or it will not avoid probate. It is a “living” dynamic document and concept. It isn’t something that you just put in a safe deposit box and forget about. Whether you write it or a lawyer writes the trust, it doesn’t matter. You have to know your trust inside and out and use it regularly.

If you want to set up a trust, my book, Protecting Your Financial Future, has detailed information on how to avoid probate for you.

20 Jul 2011

How Do I Protect My Assets from Lawsuits?

Tags: lawsuits, trust
Posted in Asset Protection, litigation, rental property, shelter | Comments Off

It is best to get your asset protection take care of well before you get sued, go bankrupt, or have some other type of trouble. Which instruments you use depends of the asset you are trying to protect. Your business should be held in an entity, your home should be held in a trust, rental properties should be held in LLCs.

11 Jul 2011

Multiple Items in One Trust?

Tags: land trust, trust
Posted in Estate Planning Basics, funding trust, savings bonds, Taxes | Comments Off

Question: Can multiple items be placed into one trust or should a Trust be created for each item? Answer: You can create multiple trusts. However, usually one trust holds all of a person’s or couple’s items. The trust owns all of your assets (those that require a signature to dispose of), so that the items won’t have to be probated upon your death. The trust should “own” your bank accounts, safe deposit box, brokerage accounts, and all of your real estate. Your new car needs to be purchased in the name of your trust. The things that you would own in your own name should be owned by the trust. Note that you don’t own the washer and dryer in your name. You just own them by virtue of the fact that they are in your possession. Those types of items don’t have to be transferred to the trust’s ownership. Each transfer needs to be evaluated for the tax aspects of the transfer. The attorneys can screw up the transfers, and of course, the individual clients can screw them up really bad. At the end of this blog is a little story I tell in my book, Protecting Your Financial Future. The book will walk you through all of this. Get it and I’ll include a 90 minute ($20 value) DVD for only $14.99 by calling 801-802-9005. Some folks who are big on land trusts (I am not big on land trusts), and will tell you to create a different land trust for each piece of investment real estate you have. They claim you can protect your identity if you do it all right. That is mostly a myth. Some claim you will get asset protection out of the land trusts. That is not a myth; it is a lie. Your living revocable trust will own all your assets in the same trust. It is a great probate avoidance tool. Treasury Bonds/Notes One year, an elderly lady and her daughter came to me on April 1st with a $32,000 problem. The local banker and attorney had helped the lady put a simple living revocable trust into place. It was a simple trust, and the banker and lawyer had been smart enough to know that the trust had to be funded. All the lady owned was about $100,000 in treasury bonds. She and her husband had spent their lives saving these bonds. The banker and lawyer figured that the only way you could get the trust to own the bonds was to have her sell the bonds and then reinvest all of the money in new bonds that would be purchased in the name of the trust. The banker and lawyer had set her up for a disaster. When she sold the bonds, it triggered the income tax on all fifty years worth of earnings from the bonds. There isn’t any tax until you sell; then the tax hits. She paid $32,000 in income tax that year and there wasn’t a thing I could do about it. All the banker and lawyer had to do to change the name on the bonds was use Form PD F1851, Request for Reissue of United States Savings Bonds/Notes in the Name of Trustee or Personal Trust Estate. Form PD 4633 is used for treasury bills. The Federal Reserve Bank uses the forms to change the name on the bonds or the bills without triggering any income tax problems. Your banker can help you get the Federal Reserve change papers. Whenever you are changing the title on an asset, you must be concerned about the tax consequences. The good news is, almost all assets can be transferred to the living revocable trust without any adverse tax effects.

06 Jul 2011

Casey Anthony Verdict: Cautionary Tale for Estate Planning

Tags: avoid probate, trust
Posted in Asset Protection, beneficiary, Casey Anthony Verdict | Comments Off

Many parents put a child’s name on their property in an effort to avoid probate. They figure that the property will go directly to the child when they die. Legally it works, but it can often cause problems. I always tell my clients to avoid this, because “kids are like yogurt, you never know when they will go bad.”

02 May 2011

Taxing LLC as S Corporation

Tags: sub S qualified trusts, trust
Posted in Featured, LLC, LLC and Taxes, LLC Formation | Comments Off

Hi…I’m one of Lee’s students and I have 2 questions I was wondering if you could help me with.

Thanks much! Sabrina G.

Question 1. To set up my LLC to be taxed as an S corporation rather than partnership, what forms do I need to fill out (I’m in Indiana)? And where do I send those forms?

A. They are IRS forms, not Indiana State specific. First you need the SS4 tax id. Then form 8832 should be filed to create a corporation and then about a week later form 2553 needs to be filed to designate the corporation as an S corporation. Get them from IRS.gov. Do you have the accumulation and preservation of wealth set or the LLC Wizard set? The LLC Wizard goes through all of this in detail (line by line).

Question 2. I’m looking to set up the bank checking account for the LLC. Should I put the account in the name of the LLC or should a trust be set up for this?

A. The account needs to be in the name of the LLC. The trust is the member of the LLC and the trust owns the LLC, not you. This avoids probate on the LLC when you die. If you are doing an S corporation, the trust has to be a “special form” of living revocable trust. The trusts in the Accumulation and Preservation of Wealth Course are sub S qualified trusts, because of their wording.

06 Jan 2011

Elizabeth Edwards’ Will and Asset Protection?

Tags: Elizabeth Edwards, Elizabeth Edwards' will, estate, John Edwards, living revocable trust, trust
Posted in Lee R. Phillips, Trusts | Comments Off

The Will and Asset Protection Elizabeth Edwards had a will and asset protection or did she? It was on the news, in the papers and on the internet. The whole world knows that Elizabeth Edwards, who died last month after a battle with breast cancer, made no mention of estranged husband John Edwards in her will. When the whole world knows your affairs because of your will is that real asset protection? The truth is that will does not provide good asset protection. If you want true asset protection it is far better to look to a trust. When you use a will to give a way property it must be probated. This means you take the will to court and the judge will order how the property is distributed. Any proceeding in court becomes a matter of public record. Anyone can look up your will and how it was probated. This is real breach inprivacy.

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