Worst Trust Funding Advice Gets 2 Million Views?!

Disinformation and bad advice that tells people what they want to hear spreads a lot faster and further than uncomfortable truths that force people to take action. One YouTube video I watched provided some of the worst revocable living trust funding advice and misinformation that I have ever heard from an attorney telling people to leave certain assets outside of the trust. And it has almost 2M views at the time I am writing this. Why has it spread so much? Possibly because it tells people they can be lazy about funding their trust, keep assets and accounts as they are, and leave out a lot of assets that clearly could or should be.

The advice provided by this attorney failed in two specific ways: 1) It provided false information altogether about why assets shouldn’t be placed into the trust, and 2) it provided false information about the consequences of leaving an asset outside the trust.

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So here are the biggest pieces of bad advice in the video on leaving assets out of a trust that, again, almost 2 million people viewed:

Vehicles Shouldn’t Be Retitled to the Trust: While many of my clients have experienced a lot of difficulty retitling vehicles in the name of their revocable living trust, it is not impossible. In a lot of cases, “the juice isn’t worth the squeeze” because, on balance, probate is not horrible around vehicle transfers, and there are opportunities to buy vehicles in the name of the trust in the future that bypass a lot of the frustration. However, this attorney told the audience that all the trustee needs to do is go down to the DMV with a death certificate and retitle the car in the name of the beneficiary. The point is I lay out all of the pros and cons for my clients, and they can decide if it is worth the hassle.

This is absolutely false. Certainly this is false in North Carolina as well as most other states, and, unless a credible attorney I know tells me otherwise, I’d bet it is never that easy in any U.S. state. In order to transfer a vehicle titled in a deceased person’s name, the DMV requires Letters Testamentary or Letters of Administration from the probate court. This means that the vehicle needs to be listed as a probate asset in all of the application paperwork with the court, the vehicle valued, and the transfer made in accordance with the Last Will and Testament. Then the personal representative (executor) of the estate has to account for the vehicle in the Inventory, list the vehicle transfer to the Will beneficiary (usually the trust), and then obtain releases signed by the beneficiary. While we have a few shortcuts that can reduce the paperwork that we use in my law office, I have not seen it be as easy as presenting a death certificate at the DMV and the car just gets transferred directly to the beneficiary in the trust.

He also went in depth about how if your vehicle is titled in the name of your trust, then if it is involved in an accident then people suing you will know you have a revocable living trust. My response to this:

“Duh.”

Here are the reasons why it doesn’t matter in the least that your vehicle is titled in the name of your trust. 1) Unless you leave your trust completely unfunded, meaning you leave out real estate, only the most ridiculously stupid and negligent injury attorney isn’t going to see that you transferred other assets into your trust, and they will find out about the trust anyway. 2) if in a lawsuit, you will be deposed about all assets under your control, which will bring out the fact that you have a revocable living trust. 3) If lawsuit protection is actually a concern, then you should be taking solid liability protection steps by having your vehicle titled in an LLC, renting your vehicle from your LLC, and possibly even having the LLC titled in the name of an irrevocable trust under the control of a trusted person in your life as the trustee. Or you could just increase your insurance.

Again, this bad advice was viewed by about 2 million people who now believe that moving a vehicle into a trust unnecessarily exposes them to risk when it would only expose them to more risk only from an absolute moron of an injury attorney who doesn’t know enough to check public records for someone they plan on suing.

Annuities Should Not Be in the Name of the Trust: This is like telling people all hospitals should be shut down because some of them have high infection rates. The attorney in the video made a huge point about how all annuities will lose their special tax status if they are transferred into a revocable living trust, so you should never do it. Again, this is absolutely false, and, frankly, lazy. Annuities come with tons of different features, provisions, and specifications. What’s important to look at is whether or not the annuity was funded initially with tax-deferred money, such as from an IRA or 401k.

When you move an IRA, 401k, or any tax-deferred account into a trust, then it triggers all of the taxes to be due a payable. This doesn’t happen when you move those accounts into an annuity, but it would if you then moved the annuity into a revocable living trust. But not all annuities are created by transferring in retirement accounts. Any money can fund different types of annuities. And there are a ton of different annuities.

[As a aside, there are many people who falsely believe all annuities need to be avoided because Suze Orman absolutely blasted a single type of annuity that isn’t even necessarily bad. Variable annuities, where the money funding the account is invested in the stock market and generally have high fees, can be extremely useful for working people in their 40s and 50s who 100% intend to turn the annuity into an income stream. Where there are issues is when financial advisors and stock brokers looking for higher commissions get people in their 70s or later to buy these variable annuities who don’t have 15-20 years to let them sit and accumulate before turning them into income. But saying ALL annuities are bad is like saying no one should ever purchase a lighter because they can be used by arsonists if they fall into the wrong hands.]

It is absolutely false that ALL annuities will trigger immediate taxes if transferred into a revocable living trust because a lot of annuities are not initially created using retirement account money. Another feature of annuities is that the accumulation in the annuity is tax-deferred until withdrawn. I have only rarely heard a few annuity companies say the taxes on this accumulation is due upon transfer into the trust, and I suspect that they were probably wrong. The point is it is absolutely lazy and inaccurate to make a blanket statement that annuities shouldn’t go into a revocable living trust. The reality is that each annuity should be examined, and then the pros and cons of moving the annuity into the trust should be reviewed. But, generally, if the annuity is not initially funded with retirement account money, then it is most likely best to transfer ownership into the trust.

Again, 2 million people heard this advice and some may have taken (or not taken) action because of it.

Life Insurance: Here is one small aspect of trust funding that did make sense, and that is that a life insurance policy shouldn’t be owned by a revocable living trust. Actually, a life insurance policy doesn’t need to be owned by a trust, but should be named as the pay on death beneficiary of the trust. And here is where I completely diverge from this other attorney’s advice; he recommended that you just name your spouse or the other trust beneficiaries as direct beneficiaries on the policy.

This is what is known as Duct Tape Planning. When attorneys or other professionals make a blanket statement about naming individuals as beneficiaries on life insurance, bank accounts, or stock investment accounts and there is no tax reason to do so, they are just showing their inability to think more than one step ahead, or two steps at the most. Let’s walk through this scenario and show how naming beneficiaries directly on life insurance is a bad idea:

• Name your spouse as primary beneficiary: What if your spouse dies before you? Now there is additional paperwork with the life insurance company to prove the spouse died first before the company will look at the contingent beneficiary. What if your spouse dies after you do, but beyond the window when the company would just go to the contingent beneficiary, usually 30 days? If a spouse if the pay on death beneficiary and they die 40 days after you, but before the spouse collected the life insurance proceeds, then all of the life insurance goes into the spouse’s probate estate.
• Name the children/others as contingent beneficiaries: If your spouse dies before you do and you name contingent beneficiaries, then the life insurance proceeds go to the contingent beneficiaries. But what if they are under the age of inheritance you chose in the trust? They get it at 18, or possibly 21. What if the child is disabled at the time you pass on? They get the money and may lose their disability or Medicaid health insurance. What if they are going through a lawsuit? Those life insurance proceeds are on the table to be taken in a court proceeding.

The point is ALL OF THESE ARE AVOIDED if the trust is the primary beneficiary. At that point, it doesn’t matter who dies in what order and under what circumstances, all of the proceeds are available to your beneficiaries through the trust, and under the protection of the trustee, with multiple contingencies planned for in advance. Naming the beneficiaries directly is what was probably already set up as a "default” by HR or life insurance professionals, so this attorney’s sloppy advice means you don’t have to do anything.

These are just three horrible pieces of broad-reaching advice in just one video by an attorney, but it happened to get almost 2 million views. With advice like this being incorrect but popular, it’s no wonder that estate administration is a multi-billion dollar industry every year. Unfortunately, the people who follow the advice aren’t around to see how they were duped.

For accurate advice on estate planning and trust funding, check out the free materials at www.FreeTrustCourse.com. If you want to help counter disinformation around estate planning and help other people get solid information on estate planning, then please subscribe to the YouTube channel, like the videos and shorts each week, and share videos with the people you think need to see them. And a special thank you to my clients who decided to plan the right way based on accurate information and by putting in the time and work to properly fund their revocable living trust.