…Don’t Open the Garage Door!
Cars can be liability machines because accidents happen, and can lead to lawsuits. To answer this question, I’ll start by giving you an answer you’ve probably heard from your attorney before, “it depends.” More specifically, it depends on the type of trust that you have. But before we jump into the type of trust you have, think about why you created your trust, and the goals you set out to accomplish by creating it. I’ve learned that approaching the question in this fashion helps give clients a better understanding of the answer.
Now, I would like for you to think of your trust as a garage. Your garage has a door, and the garage door can be open or closed. If your garage door is open, you can drive your car in and out of it. And if your garage door is closed, then you cannot drive your car into your garage (I would advise not trying to anyway!). The following are a couple of common examples of why people create trusts, so let’s see where you fit, and this will lead us to the answer.
- I created my trust to simplify management of my assets during life, after death, and to ensure my estate avoids probate.
If these reasons highlight your general goals, then it’s likely that your ‘garage’ is a Revocable Living Trust (RLT). For a RLT, your garage door is open, and remains that way while living. You can drive your car in and out of your garage and access the things inside it at any time. However, because the door remains open, others can go in and out of your garage and access the stuff inside of it—meaning that the things in your garage are not protected. The rule is that if you can access it, then everyone else can assess it! RLT’s do not provide protection of the assets inside of them—but that wasn’t one of your goals, and that is okay!
Answer: If you have a Revocable Living Trust, you can make your trust the owner of your car. There is absolutely no downside to doing so. Remember, RLT’s do not provide asset protection and that’s not why you created it, so all of the assets in the trust are at risk to creditors if you are found liable in a lawsuit.
- I created my trust because I want to protect the things that I put into it from lawsuits.
If asset protection was your goal and a deciding factor, then your ‘garage’ is likely an Irrevocable Asset Protection (AP) Trust. With an AP Trust the garage door is closed. You leave it closed because you don’t want others to be able to walk in and access the stuff inside of it. You control what’s in the trust, and have limited who the assets inside can be distributed to. Because of this, the AP Trust creates a liability shield. So, don’t open the garage door!
Answer: If you have an Irrevocable Asset Protection Trust, you do not want to make the trust the owner of your car. When you make the trust the owner of your car it is now in the garage. If you and that car cause a bad accident, then everything else in the garage is accessible in the lawsuit that may ensue. Making the trust the owner of the car opens the garage door giving others a way to gain access to what’s inside, exposing the other assets you sought to protect. This defeats the purpose of the liability shield. Many people put their house and financial holdings inside their AP Trust to protect them in the event they are sued. Do yourself a favor and keep the liability machine separate from what you have protected in the trust!
Finally, don’t worry if you’ve decided it’s not a good idea to have your car in the trust. It can still be appropriately titled to avoid probate. The folks at the BMV can add a Transfer on Death (TOD) provision on the title where you declare where it goes after death.
Until next time,