What Assets are Really Held in My Revocable Living Trust?

A Revocable Living Trust is a common and popular tool of estate planning. As opposed to trusts that are created in a will and take effect after a person’s death, a living trust is created by a person (called the Grantor) during their life. The trust can own any of their assets; it names a trustee to handle the trust (including often themselves), as well as subsequent trustees to manage the estate if they are unable. The trustee is typically granted broad discretion to use trust assets for the benefit of the Grantor.

Then, after the Grantor passes away, the trust names a trustee to handle the assets according to the terms of the trust, which then function in a similar manner as a will. Living trusts are popular because, ideally, they allow loved ones to avoid the probate process, in which the administration of an estate is overseen by a court. In some cases, it can be time consuming, sometimes costly, and cannot be kept private.

Here is one significant challenge with a living trust. Any assets that are owned by a person individually and not owned by their trust are part of the individual’s estate, and not part of the trust estate when a person dies. Steps must be taken to place assets in the trust. If sufficient assets are owned by the deceased individual and not the trust, then probate may still have to be opened to handle the estate, and the primary purpose of establishing the trust would be undermined.

So, how do you do that? Sometimes trust agreements include a “schedule” of assets to list, or include a declaration that certain items of property are transferred to the trust. A new law recently enacted in Tennessee, however, clarifies that titled property must be titled in the name of the trust to be considered an asset of the trust. A separate writing or declaration is not enough.

Section 15 of HB 567 states:

(1) Assets capable of registration, such as real estate, stocks, bonds, bank and brokerage accounts, and the like, are transferred to the trust through the recording of the deed or the completion of registration of the asset in the name of the trust or trustee. Assets that are capable of registration are not transferred to the trust through only a recital of assignment, holding, or receipt in the trust instrument; and
(2) Assets not capable of registration, are transferred to the trust through a recital of assignment describing the asset with particularity in the trust instrument.

Living trusts can be helpful planning mechanisms, but it is most important to ensure that the right assets are included in the trust property. This law suggests that a “schedule” of assets amended to the trust agreement, or a declaration in the agreement that certain property is assigned to the trust, may be insufficient for establishing that the property is actually held in trust.

If you or your loved ones have created a revocable living trust, take some time to review whether the assets you believe should be held in trust actually are. A Tennessee estate planning attorney can review your trust documents and assist you in this process. If you would like to establish a living trust, a Tennessee estate planning attorney can help ensure that it is property drafted and provide instructions and assistance in titling your assets accordingly.

Please contact us today online or by calling 800.705.2121 to discuss your legal options.