5 Assets Most People Forget to Put in Their Living Trust!

Leaving just one asset out of your living trust could create a mess for your family that could cost them thousands of dollars and months or even years, or worse yet, you could ruin the life of one of your beneficiaries. And here's the reality, a living trust is a powerful tool, but if it's not funded properly, it's not worth the paper it's written on. Now, my name's Mark J. Kohler, CPA, attorney, small business advocate, and in this video, I'm going to break down 5 assets that oftentimes are left out of the living trust and create havoc for your family. Because the goal is not just to have a trust, the goal is to have a trust that actually works. Let's break it down. First, vehicles, cars, trucks, boats, motorcycles, RVs, trailers. The list can go on and on. These are generally assets that you're going to record a registration at the DMV. And boy, do we love to go to the DMV, right? So I get why people will forget about these assets because they're oftentimes so simple to get registered that we don't think the trust should be the owner of those assets. And also we get auto loans, car loans, truck loans, RV loans, and whenever we want to put an asset in a trust, it can be a pain in the butt going down to the DMV when there's a lien against the asset. I get it, but whenever possible, especially with your vehicles that are paid off, I want them titled in the name of the trust. Let me tell you why. First, and it's pretty obvious, but when you pass away, someone's gotta get that title transferred into the right name. Is it your surviving spouse? Is it a child? Is there a fight over who gets the cool F-250 or the sports car? It could get ugly. And even if the will says someone gets it and everybody agrees, you've gotta walk into the DMV and prove to them that you're the person that's supposed to get the title in their name. Now, in the United States, there's over 3,100 counties and almost 20,000 cities or municipalities. Now, You can imagine they are not all the same or uniform in the way they handle a title under someone that's passed away. Some will just take a death certificate and some DMV paperwork or a transfer on death title where available. They might even say, oh, let me see the will. And if you know Margaret or John down at the DMV, they might just push it right through for you. But in a lot of cases, they're going to ask questions. Well, who are you and why are we titling this in your name? Is your family member's estate gone through probate? Is there a lawyer that signed off on this? A judge that signed off on this? The county or city person or representative that's in charge of that office doesn't want to get in trouble or sucked into a lawsuit. It can be a crapshoot. I want to own that. In my family, I've had different experiences. When my dad passed away, we were able to transfer the Buick. Yeah, he was a Buick driver. We were able to transfer that right into my mom's name. They didn't even ask a question. Then I had an aunt that passed away recently and she had a nice vehicle and I think it was a Mercedes or BMW. BMW or something and several children that were kind of arguing over who gets what. And it didn't look that convincing when they went into the DMV and they asked, is there been a probate opened on this? We want to transfer the title to the person who's actually supposed to get it. Now, I want to be again, straightforward and honest here. Typically personal property like a vehicle is not going to go through probate. But if there's any question as to who's supposed to get that asset, they're going to hesitate. And so you're in this weird no man's land. Now that's obviously the primary problem with a vehicle with a deceased person's name on title. Now, I also want to point out that asset protection has nothing to do with this, or by keeping the vehicle out of the trust, it doesn't give you better asset protection. You're going to be liable if you're the driver, and if you're the owner, knowingly giving someone the use of your vehicle could be a problem. Whether it's in the trust or not is irrelevant. So don't worry about asset protection on this issue. What we're worried about is transferring the title upon your death. There's two solutions here. First, transfer the title when you can into your trust. And again, if you have an auto loan, RV loan, truck loan, something like that, most of the banks and the lenders, they're not going to make that easy. You're typically going to buy the vehicle in your name and then your name's going to be on title. So be it. But if the vehicle's paid off, when it comes around the next time to register the vehicle, take the time, please, to go into the DMV and put it in the trust name. If anything happens to you, boom, bada-bang, your trustee can move the title to where it needs to go. Even sell the vehicle more easily. Very, very important. So we want to keep the title in our fireproof safe with a copy of our trust and have the trust on title. That makes everything so much easier. And you can be very clear in your trust who gets the vehicle. So that way there's not an argument, not a fight with the family members. But I said there was a second option, didn't I? That is to use an LLC. A lot of people for privacy reasons and maybe a little bit of asset protection, depending on the situation, after the vehicle's paid for, will transfer the title into an LLC. The trust would own the LLC, the LLC would be on title. And implementing a privacy strategy, that LLC may keep your name completely off registration and title and insurance. And if you're worried about privacy, having the LLC be the owner of that vehicle that could be a big deal. And if this is a business vehicle, for sure, you're going to have some asset protection benefits. I think the entity strategy works, but it's going to cost you more because you got to have an LLC for it. Now I want to say one more thing too. The more valuable the vehicle, the more important it is to do this. Because if you're dealing with a couple hundred thousand dollar RV or a collector sports car, antique car, it's going to be a little more challenging or difficult or odd to be transferring a title simply when you've got a high value ticket item. So the more wealth you have, the more important it is to take these vehicles and make sure they're titled properly. Number 2, retirement accounts. Oh yeah, these are fighting words if I'm talking with an investment advisor because they've been taught never put a trust as the beneficiary of a retirement account. Oh my gosh, it's going to create all sorts of problems for special elections and taxes when a person passes away. Well, truth be told, that was kind of the situation 20+ years ago. But there's been so many federal laws passed to help prevent that problem. So now every trust we design, we put in what's called see-through trust provisions, a special section that says if the trust is a beneficiary of a retirement account, you see through the trust as to who the beneficiary as an individual is of this particular account and make any elections that they're allowed to make if the trust wasn't here. That can be a really big deal. Here's why. Let's say you have a 401 at work. $200,000 401, and you go to the lunchroom for the annual company meeting where they talk about health insurance and how you want to invest your 401. And then that fateful moment with the HR director, they'll say, hey, does anybody have to make a beneficiary change? Come up here and you can fill out a COB, a change of beneficiary form. Now you want to pay attention to this because let's say when you formed that 401, you made your spouse, if you're married, the primary beneficiary, and it was just easy to say, oh, my kids in equal shares will be the contingent beneficiaries. And so if you die, the 401 would go to your spouse and then in equal shares to your kids. Oh, that sounds so easy. But what if you've had some children since you filled out that original 401 paperwork? Let's say you're divorced and didn't get in and update that 401. And then your kids, let's say one of them, heaven forbid, fell off the wagon, is in rehab. Are really going through a difficult time. Another one could be in the middle of a divorce. Another one could be under age 18. And you want that $200 grand to get dropped into their laps? I think I probably gave some of you a chill up your spine, right? There could be a lot of weird things that could happen by just allowing the 401 to get distributed to the children or whoever you may have put on there as a beneficiary years earlier. It's Pretty clear here. I'm going to recommend that you name your spouse as primary beneficiary. That's cool. That's going to make it easy for your spouse to do what's called a spousal rollover and just move it into their own retirement account. But with the contingent beneficiary line, I want you to put revocable living trust, Green Tree Trust, whatever the name of your trust is, because now if you're unmarried at the time, or for those of you that are single, it'll go into your trust and now The trust sets forth the rules. It can go to my kid in stages, a third when they're 25, a third when they're 35. I want you to hold it in trust and help them buy their first home or finish college or get out of rehab or whatever. And so now all the rules of your trust that you took so much time to use and design, now they're going to all be implemented with your retirement account. This is really important. Now let's even throw in another example. Let's say you're in a second marriage. His, hers, and our kids. Oof. And there's a lot of cases like this. I sometimes tell these stories from stage that someone forgot to update their beneficiary designations from their first spouse to their second spouse, or some of them got remarried with a prenup, or some of them said, hey, with the retirement account, I want it to go to my kids and I'll leave the home to you, or all sorts of creative things. The beneficiary designation rules, not the trust. Now let me just explain that with a story. It was a case in California. Where man died on a golf course. I don't know why guys die on the golf course. Maybe they're in their happy place. And after a couple months of the funeral and everything, his wife had a life insurance policy. And she was like, okay, it's time. I'm emotionally ready to go make a claim and go to the insurance company. So she called them up, sent it in, you know, sent in the statement where they've been paying the premiums, blah, blah, blah, and said, hey, can I get my million dollars? And they said, no. Who are you? Well, I'm His wife, so-and-so. They're like, mm, you're not down here as the beneficiary. She goes, well, we have a trust, we have a will, we have this beautiful estate plan, and he left that life insurance to me. It says it right here in the trust. They're like, on this life insurance contract, see, it's an agreement, it's a contract, it says so-and-so is the primary beneficiary, his first wife from 30 years earlier. Well, she thought, okay, this will be easy to solve. I'll give her a call. I'm sure she'll understand and she'll sign a piece of paper and get— let me have my million dollars. You can imagine how that went. Of course, she was like, not over my dead body are you going to give you that million dollars. I earned every red cent 30 years ago. And it went to the Supreme Court of California. They said, whatever that insurance contract says rules. We don't know if he changed his mind. He might have signed a trust, but he never went back to the contract and changed it and made the trust the beneficiary or made his new wife the beneficiary. So the contract rules. So this is why at the very beginning of this video, I said you have got to put assets into the trust that you maybe normally don't think about. And one of them is just like a, a life insurance policy, which we're going to talk about in more detail here in a minute, but it's also retirement accounts. We want to make sure that those beneficiary designations are updated on a regular basis. And at the very least, the trust is made the contingent beneficiary. And number 3, let's talk about life insurance. Of course, I already gave an example of the life insurance contract that you enter into with the life insurance company and then pay premiums for how many years or whatever, and you designate who the beneficiary is. Now, why I wanted to talk about it specifically for a moment is because life insurance is usually a big dollar amount. You know, you get life insurance for half a million, a million, $2 million, and the premiums can be very low. Life insurance pays out tax-free as well. So it's kind of a misconception that I don't even want my trust near this. I just want to name the beneficiary and have that money go tax-free to the beneficiary, whoever it is. Whether you name your trust or not as a beneficiary, it's still tax-free. So don't worry about screwing it up by putting the trust as the beneficiary of the life insurance. But because it's such a big dollar amount, what I worry about is who's getting that money. And I've got other stories and examples of kids receiving big chunks of life insurance. And within a year, the money's gone. It's very dramatic sometimes to see this happen. And it really doesn't help the kids as they're trying to go through adulting and life and college. I'll tell you, if my parents had passed away when I was anywhere between, gosh, 16 and 25, and I had a couple million dollars or a million dollars dropped in my lap, I probably wouldn't be here today. And my parents would have never meant that to happen. But if they were to have that life insurance go into a trust that says, hey, Mark doesn't get this money yet unless it's for medical reasons or for tuition and housing to go to college. And in fact, if he gets straight A's or maybe even B's or graduates, we'll give him a bonus. You know, he can have an extra $50,000 or $100,000 upon graduation. And if he wants to go to graduate school, we'll double down even more. That money can be used as a tool, a carrot to help kids make better decisions as they're adulting rather than just dropping money in their lap. So I really want to beg of you to look at this seriously. And at the end of this video, I'm going to give you a challenge to do an audit of sorts on all of these assets. And it's not as hard as you may think. Number 4, we've got to talk about your business entities, LLCs and corporations. And I'm not just talking about your entities that may own a rental property or have an asset in them. I'm talking about your operational business. Let's say you have a restaurant and then you also have an LLC that owns the building. Two entities that have two different purposes, but they both need to be owned by your trust. Now let's talk about an asset entity, for example, first. Let's say you have a rental property. Again, a misconception is, well, Mark, I have a mortgage on that rental property. I can't move title. I got a Fannie Mae, Freddie Mac loan and the bank will freak out if I transfer title to my trust or an LLC or anywhere. Oh no, please do not fall prey to that. That is completely incorrect. We have helped thousands of clients and transferred thousands of properties into their LLC after they've closed, even if they have a mortgage with no due-on-sale clause called into effect. No problems at all. And you would transfer that home into the LLC after closing because you want asset protection. But where's the trust in all this? Your trust owns the LLC. And so at our law firm, when we're setting up entities for clients, one of our first questions is, do you already have a revocable living trust? And they'll say, no. Okay, well, let's get it done at the same time, 'cause we want that trust to own this new LLC you're setting up. And let's make sure that that ownership from the property to the LLC to your trust is continuous, it's connected. And if you go, oh yeah, yeah, I already got a trust. Perfect, what's the name of the trust? Okay, your LLC will now be owned by that trust. And of course it happens too where people come in and go, hey, I've got all these LLCs and I need to set up a living trust. What do I do? Oh, we just transfer the ownership of those LLCs to the trust. It's called an MTA, Membership Transfer Agreement. We include 'em for free to transfer into your trust, at least up to 2 or 3 entities, to get those entities transferred to your trust if you set up the trust after you've already got the LLC. It all works. It's easy to do, but let's back the truck up again. What are we talking about? We're talking about a rental property. It could be raw land, a second home, a farm, a ranch. It could be crypto, an investment account. If you have an asset that's just sitting there in your name, typically you're going to put it into an LLC for better protection. And we want the trust to own that LLC. That's the connection. Now, why do we want this connection to? Because of probate. We do not want that rental property or whatever that asset is in your name, because if you pass away without it being connected to the trust, in that example there, it's going to end up in court. You're going to end up paying lawyers. You might have county and state and federal taxes involved. It could be a complete mess because you didn't take the time to transfer that asset into the right structure. We're trying to avoid probate, remember, right? Let's talk about one of these other businesses of yours, like an operational business. Let's say you're selling product online. You're a consultant, an advisor. You're billing people. You have accounts receivable. You have a restaurant, you have pizza place, and you've got ovens and employees and payroll and taxes that have to be paid and filed. And the business could be an asset in and of itself. The family might be able to sell that pizza restaurant or that online business, right? So we want that entity, even if it's an S corporation, to be owned by the trust again. Now, the reason for this is that when you pass away, the trustee can step in and run the business, collect the accounts receivable, pay the bills, file the tax returns, sell the business. And they have the power to do it because they're the trustee of the trust. And the trust is the owner when you die. That's why we want the trust to own any of your business entities, whether it's asset-based or an operational business. Now, number 5, I want to talk about cryptocurrency. 1 in 3 Americans now own crypto in some form or fashion. The good old Bitcoin or XRP, whatever your flavor is. But when you buy crypto, it's kind of weird, right? You really don't get a stock certificate. You get an account number with an exchange. You get a wallet ID, an address. You can take it in different forms. It's kind of odd, right? And it's tied to an email typically. Well, if something happens to you, how in the world does your family get to that crypto? A lot of this crypto just disappears because the person that passed away didn't plan to pass away. I know we all think we're immortal, so we don't plan for this sort of thing, but not you. That's why you're watching this video. You're like, oh my gosh, I've got to deal with this. So when it comes to crypto, what I recommend is that you make sure in your trust there's a special section that has your email addresses, the passwords, the keys, and the exchanges where you have crypto, so that your trustee can step in and get that crypto and transfer it. Now you may say, Mark, I change my password like I change my underwear, you know, or whatever. You're like, you're changing your password all the time. Well, you've gotta have a procedure here, whether it's with a very trusted loved one or someone. You've gotta have a way for your family to get into those accounts and move that crypto. And you know what I'm talking about. It can be scary to give those keys to anybody. I know. But there's those vaults to keep passwords and all sorts of different softwares out there to create security, but a backup plan if you're not around. So I bring this asset up because it's kind of a tricky one in that you are not going to actually title these assets or create a beneficiary or move the asset into the trust. You are going to refer to that asset in the trust, list it, and give all the information necessary for your trustee to go grab it and distribute it where you want it to go. Now, I also want to throw in one last bonus, and that is the topic of guns. Guns are a unique one because again, even though they might be allowed in a federal fashion, depending on the type of firearm, you've got state laws that can vary dramatically. And if you own guns or firearms, let's call them, and in your trust you leave them to a certain individual that, let's say, lives in California, but you passed away in Arizona, they may not even be allowed to have that gun. And crossing state lines could be a serious crime. And that's just to name one issue. Firearms can be tricky. What a lot of estate planners will recommend is a gun trust, a trust set up specifically for guns. Or having a section in your revocable living trust that designates who receives these guns. And when you go to purchase guns or, and especially firearms that are registered at a higher level of scrutiny, you're going to put them in the name of the trust, register in the name of the trust. This could help your family a lot when they go to transfer firearms after your passing. So in summary, your living trust is so powerful. You can see it here, but we've also got to keep it funded so we can let it do its job. So I want to challenge you to do an asset audit. Certainly if you're setting up a new trust, but for those of you that already have one, and that entails listing out everything you own, just do a spreadsheet. You can handwrite it, put it in Excel and list all the assets you own and how they're titled, registered, or who the beneficiary is. And don't just guess. You got to go look it up. Get online and log in into your retirement account. Log into your life insurance company. Pull the title to your vehicles. Pull the title on your rental properties, your house. Start tracking down the keys and email accounts and passwords for your cryptocurrency. Look at your investment accounts where you might be holding stock or mutual funds or ETFs. Get this spreadsheet out and look at all of these different categories of ownership. And then at the end of the day, we're going to make sure your trust is connected to all of them as the owner, the member, the shareholder, the beneficiary, whatever the case may be. So now your trust can do its job. A trust will help you save taxes, protect your wealth, feel more organized, be more successful, leave a legacy, and most importantly, not leave a mess to the ones you love. And make sure these hard-earned assets you've worked for your whole life are bequeathed, given, distributed to the people you love in the most effective, safe way. So if you're ready to set up your trust, please look at the link below. My team at KKOS Lawyers helps families, business owners, investors all over the country coordinate their estate with a proper tax strategy and legal structure. There's a link in the description below if you'd like to connect with us. And if this helps you better understand how your trust should work, hit the like button, subscribe, turn on notifications. So you don't miss future videos on protecting your family, saving taxes, and building your American dream. I'm Mark J. Kohler. Thanks for watching, and I'll see you in the next one.