How are jointly owned assets treated when placed in a trust

Jane just called, absolutely frantic. Her husband, Robert, passed away unexpectedly last month. They owned their home as joint tenants with rights of survivorship, and also had a brokerage account titled jointly. Jane meticulously created a Trust five years ago, but never actually funded it – meaning she never formally transferred ownership of those assets into the Trust’s name. Now, the bank is refusing to release funds from the brokerage account without a court order, and she’s facing the prospect of a full probate, despite believing the Trust would avoid exactly this scenario. She’s staring at tens of thousands in legal fees and a six-month delay, simply because of a missed step. This is a shockingly common situation, and one we work to prevent every day.

The treatment of jointly owned assets when placed in a trust is often misunderstood, and it’s a critical area where good intentions can quickly unravel. Simply having a Trust isn’t enough; you must actively transfer ownership of assets into the Trust to achieve the benefits of probate avoidance. Joint ownership creates a layer of complexity that requires careful planning, and failing to address it proactively can lead to precisely the kind of probate nightmare Jane is now experiencing.

When assets are held jointly – whether real estate with rights of survivorship, bank accounts, or brokerage accounts – they pass automatically to the surviving joint owner upon death, bypassing probate. This is a powerful feature of joint ownership. However, this automatic transfer completely overrides any instructions you might have in your Trust regarding those specific assets. The Trust simply doesn’t control what’s already designated to go directly to the other joint owner. This is the core issue; your Trust document only governs assets titled in the name of the Trust.

What Happens If You Don’t Retitle Jointly Owned Assets?

If you don’t retitle jointly owned assets into your Trust, they remain outside the Trust’s control and will pass directly to your joint owner, regardless of what your Trust says. This defeats the purpose of the Trust for those assets. For example, if you and your spouse own a home as joint tenants with rights of survivorship, and it’s not titled in the name of your Trust, your spouse will automatically inherit the full ownership upon your death, outside of probate. While this might seem desirable, it doesn’t allow for continued Trust administration or the potential benefits of Trust-based asset protection for your spouse and heirs.

Furthermore, consider the implications for blended families. Let’s say Jane and Robert had children from prior relationships. They wanted their assets divided equally between all their children, but Robert’s share of the jointly held home would automatically pass to Jane. Without careful planning, this could disrupt their intended estate plan and create family conflict. It’s a scenario we see frequently.

How Do You Properly Integrate Jointly Owned Assets into a Trust?

The solution is to proactively retitle jointly owned assets to reflect ownership by the Trustee of your Trust. This doesn’t mean you lose access or control during your lifetime. You, as the grantor, typically also serve as the initial Trustee and maintain full control of the assets. However, the title now reflects that the Trust, not you individually, owns the asset. This ensures that the assets are governed by the terms of your Trust upon your death.

• Real Estate: Execute a new deed transferring ownership from yourselves as joint tenants to the Trustee of your Trust (e.g., “John Smith, Trustee of the John Smith Revocable Living Trust”).
• Bank & Brokerage Accounts: Change the registration on the account to reflect ownership by the Trustee. This typically involves completing a form provided by the financial institution.
• Vehicles: Retitle vehicle registrations in the name of the Trust.

It’s crucial to understand that simply adding the Trust as a “beneficiary” on these accounts isn’t sufficient. Beneficiary designations trigger upon death, after the account is frozen. The goal is to have the Trust own the asset directly, allowing the successor Trustee to seamlessly access and manage it without court intervention.

What About Assets with “Transfer on Death” or “Payable on Death” Designations?

Similar to joint ownership, “Transfer on Death” (TOD) and “Payable on Death” (POD) designations also bypass the Trust. These designations instruct the financial institution to transfer the asset directly to the named beneficiary upon death, bypassing probate but also bypassing the Trust. If you intend for these assets to be governed by your Trust, you need to eliminate the TOD/POD designations and retitle the assets in the name of the Trust. With digital assets, this is even more critical. Without specific RUFADAA language in your Trust, Coinbase and Google can legally deny your executor access to your digital wallet and photos.

The Impact of AB 2016 and Prop 19 on Jointly Owned Real Estate

Here in California, recent legislation adds another layer of complexity. AB 2016…effective April 1, 2025, primary residences worth $750,000 or less may qualify for simplified transfer under AB 2016 (Probate Code § 13151), but investment properties still face full probate. This can be a significant benefit for smaller estates, but it doesn’t negate the importance of Trust funding for larger, more complex estates. Furthermore, Prop 19…under Prop 19, your children cannot keep your low property tax base unless they move into the home as their primary residence within one year. This can create a difficult situation for beneficiaries who want to rent out the inherited property.

As an Estate Planning Attorney and CPA with over 35 years of experience, I’ve seen firsthand the frustration and cost associated with improper asset titling. My CPA background allows me to not only structure your Trust but also to understand the tax implications of various transfer strategies, including maximizing the step-up in basis for inherited assets and minimizing potential capital gains taxes. Proper valuation is also critical, especially for business interests. For high net worth clients, we must also consider the TCJA Sunset…the Federal Estate Tax Exemption drops by ~50% on Jan 1, 2026, putting assets over ~$7M (single) or ~$14M (married) at risk of a 40% tax.

What if I Have a Business – An LLC or Corporation?

If your estate includes interests in a Limited Liability Company (LLC) or Corporation, the rules become even more nuanced. The CTA Deadline…managing a deceased owner’s LLC now requires filing an updated BOI Report with FinCEN to avoid $500/day civil penalties. Failing to address the business ownership within the Trust framework can create significant administrative burdens and potential penalties for your heirs. It’s essential to ensure your Trust is structured to seamlessly transfer ownership and maintain the ongoing operation of the business.

Ultimately, a Trust is a powerful estate planning tool, but it’s only effective if it’s properly funded and integrated with all your assets, including those held jointly. Don’t let a simple oversight derail your carefully crafted estate plan. Proactive planning and diligent asset titling are the keys to ensuring a smooth and efficient transfer of your wealth to your loved ones.

• Disclaimer: This information is for general guidance only and does not constitute legal or tax advice. You should consult with a qualified estate planning attorney and CPA to discuss your specific situation.