Can the Name of Your Trust Put You at Risk?
One of my clients approached me the other day with a concern that I felt deserved a thoughtful answer. This client had recently come across an article written by an attorney who claimed that naming your Revocable Living Trust (a very common estate planning tool) with your own family name could put your family’s privacy in grave danger. The article’s author claimed that such a practice “completely destroys the entire privacy prong of trust benefits.” [emphasis mine]. This statement is misleading for at least two reasons:
First, regardless of what your trust is named, the privacy benefits of a living trust can still be maintained if you simply do not disclose your trust documents to individuals outside of the attorney-client relationship. The legal principle that ensures this privacy is called “attorney-client privilege.”
When an individual works with an attorney in designing his or her estate plan, a great deal of sensitive information is shared with that attorney. Our laws acknowledge the fact that if such information is not protected from those who would use it to our disadvantage, people simply won’t share that information with others, including their attorneys. And if people won’t share such sensitive information with their attorneys (or doctors, or clergy for that matter) then that professional’s ability to help his or her clients solve their problems is seriously handicapped. These “privileges” prevent an attorney from disclosing information that is intended to be kept private, even when they are on the witness stand in a court of law. However, one way that this privilege can be destroyed is when the client shares this information with a third party. The logic is this: “Well this information must not have been that sensitive if you were willing to share it with someone other than your attorney.” So as long as you keep the contents of your communications with your attorney confidential and take care to not willfully, and sometimes even inadvertently, disclose this information to the public or other third parties, this privilege will ensure that your trust documents and the details about the trust assets will remain private, “privileged” information that can only be accessed in the rarest of cases. This privilege under the law extends to your estate planning regardless of your trust’s name.
Thus, to assert that naming your trust with your family name “completely destroys the entire privacy prong of trust benefits,” is simply wrong. Clearly, a great deal of privacy about your trust and your intentions of how your estate is to be managed at your death or disability can be preserved even if it is named after you or your family.
Second, the article’s author claims that naming your trust something like “The Jimi Hendrix Experience Family Living Trust” will prevent frivolous lawsuits. He appears to suggest that a plaintiff's attorney, if doing a public records database search came across a trust named “The Mickey Mouse Family Trust,” would have no way of finding out who in fact owned that trust. First of all, before a trust can exist, it has to have assets transferred to it. Typically, when we fund a trust by transferring our property into it, we first own that property in our own names. For instance, if we transfer a piece of real property, we must do so through a deed. The deed will always contain information about (1) who is transferring the property, and (2) who the property is being transferred to. Unless the plaintiff’s attorney is a complete dolt, they will quickly recognize that the deed recorded in the public records database deeding a certain parcel of property from John and Jane Doe to “The Jimi Hendrix Experience Family Living Trust” is evidence that John and Jane Doe have done some estate planning / asset protection planning and still in fact own this property through a very common type of legal ownership. Furthermore, this type of ownership changes nothing with regard to the ability of the plaintiff’s attorney to assert a claim against the family. The only thing that will really matter in such a case is whether the claim is in fact valid. If it is a valid claim, any decent plaintiff’s attorney will be able to get at those assets to satisfy a judgment as long as you continue to exercise a certain level of control over those assets as one does when owning them in a typical living trust arrangement.
This is not to say that one cannot do asset protection planning that will provide protection against frivolous lawsuits. On the contrary. There are many effective, legal, and ethical methods of protecting oneself against this type of threat. But simply changing the name of your Revocable Living Trust is not one of them. This method is very unlikely to deliver on its promise, and worse, may give you a false sense of security, thereby distracting you from pursuing truly legitimate methods for safeguarding your assets.
Furthermore, by choosing a strange name for your Living Trust, you may be making the funding of your trust (transferring your assets like bank accounts, brokerage accounts, life insurance, etc.) a much more complicated and frustrating process than it needs to be. Financial institutions may be reluctant to recognize a trust with such an odd name as a valid beneficiary or owner of an asset. True, legally they may be required to recognize it. But from a practical standpoint, you may well be making more trouble for yourself than it is worth.
Finally, as I more closely examined this article, it appeared to me that the author was carefully leading his readers towards the purchase of certain one-size-fits-all asset protection planning products that are, at best, of questionable value. And the problem with asset protection “products” that claim to be a panacea for all of your asset protection needs is that they rarely deliver what they promise. It would be equally absurd for a dentist to recommend a crown because you have a toothache before taking x-rays. Until the dentist spends some time checking your teeth, studying newly taken x-rays, or otherwise gathering the relevant facts, he simply cannot honestly determine whether you will need a filling, a root canal, a crown, or a full-blown extraction. If an attorney doesn’t spend a good deal of time gathering relevant facts about you and discussing with you the issues that you are concerned about, he or she cannot possibly recommend a specific course of action that will be appropriate for your circumstances.