Helping you ensure your wealth, values, and legacy live on
A revocable living trust is an instrument created for the purpose of protecting your assets during your lifetime. It also creates an avenue to pass your assets with ease after your death. There are several benefits of creating a trust. The chief advantage is to avoid probate. Placing your important assets in a trust can offer you the peace of mind knowing ownership of assets will be passed onto the beneficiary you designate, under the conditions you choose, and without first undergoing a drawn-out legal process. A trust can also provide you with some level of privacy as to the information shared about your estate. Another feature is that placing your assets in a trust will help protect them should you become incapacitated.
ASSETS THAT CAN GO INTO YOUR LIVING TRUST
Real Estate
Many people wonder whether it is a good idea to place their house in a trust. Considering that your home is potentially one of your largest assets owned, living trusts can be especially beneficial for transferring real estate quickly. Additionally, they help avoid the hassle of separate probate proceedings for land, commercial properties, and second homes that are owned out of state or held in different counties. Any property with a mortgage, however, would require retitling into the name of the trust and some lenders may be reluctant to do this.
Financial Accounts
There are several types of financial assets that can be owned by a trust including:
- Physical bonds and stock certificates
- Shareholders stock from closely held corporations
- Non-retirement brokerage and mutual fund accounts
- Money market accounts, cash and liquid securities, checking, and savings accounts
- Nonqualified Annuities
- Certificates of deposit (CD)
- Safe deposit boxes
- Notes and other debt instruments
Life Insurance
Many people ask if it is a good idea to put life insurance in a trust. The benefits include protecting it from creditors and making it easier for your loved ones to access the money by avoiding probate. Naming the living trust as a beneficiary of your life insurance may come with some risks. If you are the trustee of your revocable living trust, all assets in the trust are considered your property. In this instance, life insurance proceeds are counted as part of your estate’s worth and could create a taxable situation should you reach the IRS threshold for taxable estates. Funding a trust with life insurance and annuity contracts generally requires a change of ownership form submitted to the contract issuer.
Valuable Personal Property
Personal items such as jewelry, art, collectibles, and furniture, including pianos or other important pieces, may be placed in a trust. Personal property without any legal certificate or title is commonly listed on an accompanying schedule that is kept with your trust documents. Those assets with certificates or legal title often require the owner to quitclaim their ownership interest to the trust.
Collectible Vehicles
Some cars retain their cash value for long periods of time and therefore may be worth transferring to your revocable living trust. It is worth considering the title transfers and taxes that may be imposed so it is important to speak to a trusted financial advisor or lawyer before transferring such assets.
CAN I PUT MY BUSINESS IN A LIVING TRUST?
There are a number of advantages of transferring your business interest into a revocable living trust. Benefits generally include providing relief to your family from carrying the burden of your business debts, as well as the potential to reduce the tax burden on your estate. Below are the effects of several types of business ownerships:
Sole Proprietorships. Transferring a small business during the probate process can present a challenge and may require your executor to keep the business running for months under court supervision. Often sole proprietors hold business assets in their own name so transferring them to a trust would offer some protection for the family. For a sole proprietor, transfers to a trust behave generally the same as transferring any other type of personal assets you own, including your business name.
Partnerships. With partnerships, you may transfer your share in the partnership to a living trust. If you hold an ownership certificate, you will, however, need to have it modified to show the trust as the shareowner rather than yourself. It is important to note that some partnership agreements may prohibit transferring assets to living trusts so you will want to consult a financial advisor or attorney.
Limited Liability Companies (LLC). Depending upon your operating agreement, LLC business owners often need approval from the majority of owners before they can transfer the interests in the company to their living trust. Once transferred, the voting ability remains with you, but your ownership share will fall to the trust.
ASSETS THAT CANNOT OR SHOULD NOT BE PLACED IN YOUR LIVING TRUST
There are a variety of assets that you cannot or should not place in a living trust. These include:
Retirement Accounts
Accounts such as a 401(k), IRA, 403(b), and certain qualified annuities should not be transferred into your living trust. Doing so would require a withdrawal and likely trigger income tax. In this instance, it is possible to name the trust as the primary or secondary beneficiary of the account, which would ensure the funds transfer to the trust upon your death.
Health Savings Accounts or Medical Savings Accounts
Since HSA accounts already allow you to use the money tax-free for allowable medical expenses, they cannot be transferred to a living trust. Like retirement accounts, however, you can name the trust as the primary or secondary beneficiary.
Active Financial Accounts
It is not advisable to transfer accounts you use to actively pay your monthly bills unless you are the trustee and granted full control of the trust assets. For many people, it is simply easier to keep these accounts out of the trust.
Vehicles
Generally, vehicles like cars, boats, trucks, motorcycles, airplanes, or even mules or snowmobiles are not placed in a trust because they often do not go through probate. Additionally, many states impose a tax when the vehicles are retitled, and some do not allow vehicle owners to name a beneficiary after death.
WHAT ELSE DO I NEED TO KNOW?
Flexibility these trusts offer helps to ensure that your assets are protected during your lifetime and pass easily to heirs after your death. While creating a living trust may be costly and require a lot of legwork to fund, there are many benefits to using it as an instrument to protect your assets.
Estate laws vary from state to state. This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
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