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Personal Effects
In
General
What are Personal Effects
How to Fund Personal Effects
Specific Bill of Sale
Generic Bill of Sale
After
Acquired Property (Property Purchased After Signing the Bill of Sale)
Should Automobiles be Funded?
Automobiles,
Boats, Trailers, Campers, Motorcycles and RVs
Special
Issues Pertaining to Antique Automobiles and Trailers
Notice to
Property & Casualty Insurance Company
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In General: Personal effects are often
overlooked in the funding process. Yet many people hold a substantial amount of wealth in
personal effects. When the prospect of funding personal effects is first presented to
clients, they often envision images of inventorying each and every asset they own.
However, the process of funding personal assets is a much easier process than most
expect.
What are Personal Effects:
Personal effects can include such things as jewelry, appliances, tools,
furniture, clothing, china, silver, coin collections, works of art, and the like.
Technically, any tangible asset that a client owns is considered a personal effect.
The
problem with funding these types of assets is the lack of documentation evidencing
ownership. When a person buys a new refrigerator or a new set of power tools, they do not
receive a deed as they did when they purchased their home or a certificate of title as
they did when they purchased their automobile.
How to Fund Personal
Effects: Funding personal effects will require using one of two different
types of legal documents. For assets of substantial cash value, a
Bill of Sale of Specific Property is utilized. For all other personal assets, a Generic
Bill of Sale is utilized. Bills of Sale, also known as "Assignments",
are typically prepared by attorneys. NOTE:
Both "Generic" Bills of Sale and "Specific" Bills of Sale contain
specific legal language that funds the personal effects into the trust. We
recommend that you seek help from your estate planning attorney in drafting Bills of Sale to fund personal
effects.
Specific Bill of Sale: For
assets of substantial cash value, such as jewelry, coin collections, works of art, and the
like, a Specific Bill of Sale may be a preferred funding approach. A Specific Bill of Sale identifies an
individual asset that is to be funded. Although a Generic Bill of Sale would probably be
sufficient to complete the funding, using a separate Specific Bill of Sale may help to
eliminate any confusion or reduce the risk of a potential postmortem challenge to the
validity of the funding. Your estate planning attorney can help you
determine if a Specific Bill of Sale is warranted in your unique
circumstances.
Generic Bill of Sale: For
most assets, a generic Bill of Sale is the preferred method of transferring ownership into
the name of the living trust. The generic Bill of Sale will change the ownership of all
personal assets into the name of the clients’ living trust. Note that each
person or each spouse will need to complete a Bill of Sale. One of the advantages of the
Generic Bill of Sale is
that no assets need to be specifically identified; rather the Bill of Sale sweeps all
personal assets into the trust.
After
Acquired Property (Property Purchased After Signing the Bill of Sale): The
Generic Bill of Sale typically contains a clause known as an "After Acquired Property"
clause. This clause provides that the Bill of Sale applies to any new assets the client
acquires after signing the Bill of Sale. CAUTION:
Not all states recognize the validity of "After
Acquired Property" clauses. We recommend that you consult your estate planning
attorney for state law interpretation and funding strategies that work best in
your jurisdiction.
Should Automobiles be
Funded: There has been an ongoing debate in the legal community as to whether
automobiles should be funded into a revocable living trust. Opponents of funding
automobiles argue that funding an automobile may subject the trust assets to potential
liability should the automobile be involved in an accident. This argument would certainly
be valid if the trust was irrevocable. However, because a living trust is revocable, all
of the assets in a person's trust are fully attachable by their creditors.
Thus, there
is no increased risk of liability associated with funding an automobile into a revocable
living trust during the client’s lifetime. A more realistic concern is the potential
risk of probate on the death or disability of the owner should the asset not be funded.
NOTE: For assistance with funding an automobile, we recommend that you contact
your
estate planning attorney.
Automobiles, Boats,
Trailers, Campers, Motorcycles and RVs: Assets such as automobiles, boats,
motorcycles and the like should not be funded with a Bill of Sale. Rather
re-titling the
vehicle by obtaining a new title with the trust owning the asset funds the asset
to the trust. NOTE: If the vehicle was financed and an outstanding balance remains
on the loan, then the certificate of title will reflect the existence of the loan and the
vehicle will generally not be able to be funded until the lien is removed.
For assistance with re-titling a vehicle of this nature, contact your estate
planning attorney.
Special Issues
Pertaining to Antique Automobiles and Trailers: Both trailers and antique
automobiles may not have a certificate of title. Should no certificate be available, a
Specific Bill of Sale should be used. Your estate planning attorney can
help draft a Specific Bill of Sale to fund these types of assets.
Notice
to Property & Casualty Insurance Company: Automobiles are often covered by an
insurance policy that protects against theft, loss or liability. Typically, these types of
insurance policies, called property and casualty (P&C) policies, are purchased in the
name of the client and provide insurance coverage so long as the client owns the asset.
Many legal commentaries have been concerned that an insurance company may attempt to dishonor
the policy if the asset is transferred into the name of their revocable living trust.
NOTE: As a
precautionary measure, you should consider having your estate planning attorney
send a letter to the insurance company
asking them to name the trust as an additional insured. Generally, there should not be any
additional premium for adding the trust as an additional insured. For
assistance with this delicate issue, consult an
estate planning attorney with experience in trust funding.
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