Why Cars & Trusts Don’t Mix

I recommend revocable living trusts to almost all of my clients, as a basic foundation to a solid estate plan. When recommending these trusts, or any kind of trust, really, I always stress the importance of actually funding the trusts. After all, a trust cannot protect what it does not own. However, you would be shocked by how many clients do not transfer their assets into their trusts, thus missing out on the desired, and paid for, benefits of trust planning. So, we have long talks about this vital step in estate planning, and the negative impact of not following through.

However, one piece of advice that I share with clients, often to their surprise, is my advice to skip funding the trust with vehicles. Here’s why.

No Escape from Liability

One, contrary to popular belief, you cannot eliminate liability by having a trust own your car. If you cause an accident with a trust owned vehicle, you are still liable.

Encouraging Lawsuits

Two, if you cause an accident with a trust owned vehicle, you’re probably increasing your chances of being sued. For many, the use of a trust is associated with wealth. Despite the fact that a trust is helpful in virtually ALL financial situations, this stereotype continues. So, it is often the case that if a potential plaintiff (or their attorney) sees that a car is owned by a trust, they assume that deep pockets are involved and are potentially more inclined to sue.

Risk to Trust Assets

Three, if a vehicle is owned by a trust and is involved in an accident, the trust will be named as a party to the litigation. This potentially makes the trust assets vulnerable to a judgment, and also places a trustee in the position of being named a defendant. Since close friends and trusted family members are often named as trustees, the last way you want to thank them for their contribution is by dragging them into litigation, even if only in their role as trustee.

What To Do?

So, if you don’t place the vehicles into the trust, how should you handle them? The last thing you want to do is open an estate simply in order to transfer title to vehicles. This happens far too often, and sometimes results in legal fees that exceed the value of the vehicle. Although Ohio law does allow you to transfer two vehicles, with an aggregate value of $65,000, to a surviving spouse, without opening probate, this ignores the plight of many who may have expensive vehicles, may have more than two vehicles, or may not have a spouse.

The good news is that a fix is easy, and just requires a trip to a title agency. At the title agency, you can add someone to your car title, either as a co-owner or as a transfer on death beneficiary. If someone is a co-owner, they own the car with you. This is a great solution for spouses. If they are a transfer on death (TOD) beneficiary, they inherit the car at the time of your death. Either option will avoid probate. They both require a little paperwork after the original car owner dies, but the paperwork is simple and straightforward, and is vastly preferable to opening an estate. This is something that you can do TODAY, without the assistance of an attorney, so why wait?

If you have any additional questions, please don’t hesitate to reach out to me at info@LBesq.com or (614) 334-6850.