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.
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.
