Newland's Business Notes

Does Your Trust Have an Asset List?

Volume 17 Issue 4 -- July/August 2013

What’s on the “A” List attached to your Revocable Living Trust (RLT)?  Frequently RLTs have an attachment referred to as an “Asset” List or “A” List, which lists assets that have been, or should be, transferred to the RLT, such as real estate, closely held stock, security brokerage accounts, bank and savings accounts, and other assets of significant value.

Tangible personal property such as, jewelry, watches, art works, etc., is usually not included in an RLT, although it can be, particularly if it is valuable or an important painting or object d’art.

Unfortunately many RLTs do not have an “A” List, even if the Trust instrument refers to one. One reason may be that the lawyer does not prepare such an attachment and assumes that the client will. Another reason is that it can take additional time to assemble the data or prepare deeds, especially if the real estate is in another state.

Although assets actually transferred to a trust will be included in the trust regardless of whether they are listed or not, an asset list can be useful in making sure that the desired assets are actually transferred to the RLT.

Why is that important?  The analogy we usually use is that an RLT without assets is as useful as an automobile without an engine. What good is that!

One common source of problems in RLTs is real estate. Typically, married couples own real estate in a form of joint tenancy with survivorship rights. If such real estate is not transferred to the RLT by deed, the survivorship rights under the deed control and the property passes to the surviving spouse outside the RLT. Thus the property may never reach the intended beneficiaries of the RLT.

A recent example of a “missed transfer” inspired this newsletter.  Mr. & Mrs. Fist Furd, who lived in Nevada, wanted to help their son Herm buy a house in Virginia so they paid cash as part of the purchase of Herm’s house.  After Mrs. Furd died, Mr. Fist Furd rewrote his RLT, but the RLT did not mention the Furds’ interest in Herm’s Virginia house, because either Fist Furd forgot to tell his attorney about his one-half interest in his son’s Virginia house or the law firm that prepared the RLT chose not to prepare an “A” list and no one realized the omission. Fist died a few years later.

A few years after his father died, Herm began estate planning, and he casually mentioned that his deceased parents may have an interest in his house. That interest, it turns out, was a one-half interest in the house with rights of survivorship between Mr. and Mrs. Furd which interest passed to Fist when Mrs. Furd died. Herm was the executor of his father’s estate and did not do probate in Nevada because he believed there was nothing to probate, forgetting about the one-half interest in his house that his parents owned.

Because the property interest was not transferred to the RLT, the interest was included in Fist’s probate estate when he died, and disposition of the property was controlled by his will.

If the deed to Herm’s house had been drafted differently the property could have passed to Herm and his wife when the last of the senior Furds died, so that probate in Nevada would not have been needed, but such joint ownership can create unexpected problems, as indicated by our Nov.-Dec. newsletter entitled “Joint Ownership versus Estate Planning” Vol. 6, Issue 6.)

A simpler alternative would have been for Fist Furd to transfer the interest in Herm’s house to his RLT and provide that the interest went to Herm on Fist’s death. In that case, no probate would have been required. 

As it was here, it became necessary to initiate probate in Nevada several years after the death of Mr. Fist Furd in order to transfer the Furds’ interest in the house from Mr. Furd’s probate estate to Mr. Furd’s RLT (the probate beneficiary).

This situation illustrates that failing to prepare an Asset List for an RLT can make such problems more likely. If assets are listed on an “A” list, it is more likely that someone will remember actually to transfer the property to the RLT. It is also far better practice to have the deeds for all real estate prepared and signed at the same time the RLT is executed.

If you have need for services of this type or questions concerning trusts, please contact Newland & Associates.

Copyright 2013

Published by the law firm of Newland & Associates, PLC
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Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

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