You go to great lengths to educate your clients about their revocable living trusts. You make sure they understand that the probate-avoidance benefits of a living trust only extend to property that’s been transferred to a trust, and you work with them in ensuring their trusts are appropriately funded. It’s common for you to counsel your clients on transferring assets like:
- Cash Accounts
- Mutual Funds
- Brokerage Accounts
- Real Estate
- Assorted Tangible Personal Property
But do you regularly counsel your clients to transfer their safe deposit boxes to their trusts? If not, you should.
Renting a safe deposit box is a simple and quick transaction. You go to the bank, fill out a form, and pay a small fee. Clients rent safe deposit boxes all the time, using them to store cash, jewelry, and other valuable personal property. But few understand that the manner in which they fill out the rental agreement can have lasting implications.
Here are three options you should discuss with your clients:
Option One: Rent as an Individual
Imagine your client has a safe deposit box containing thousands of dollars worth of cash and jewelry. She holds the safe deposit box as an individual, separate from her living trust. What happens when she dies? The bank will seal the box, allowing access only to a court-appointed executor. This means added time and expense for her family. If she doesn’t have an up-to-date pourover will, it can also mean that her assets end up being distributed in a disjointed manner that does not reflect her final wishes.
Option Two: Add a Joint Holder
Your client might be tempted to simply add a child or another loved one as a joint safe deposit box holder. Depending on the laws of your state, this approach might eliminate the probate issue. However, it can also give rise to unintended consequences. If the joint holder had unfettered access to the contents of the safe deposit box at your client’s death, he or she could abscond with the assets. Not only could this potentially derail your client’s estate plan, it could also increase the likelihood of estate litigation.
Option Three: Transfer to Living Trust
When your client transfers her safe deposit box to her living trust prior to her death, she strikes the right balance between protection of her assets and ease of administration. Her successor trustee can access the box and its contents with no need for probate. At the same time, the trustee is under a fiduciary duty to follow the terms of the trust in managing and distributing your client’s assets, including those in the safe deposit box.
If you don’t routinely talk to your clients about how their safe deposit boxes fit into the estate planning puzzle, now might be the time to start.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555