Establishing a revocable living trust helps you plan for your own needs as you age or decline in capacity, and arrange for the transfer of assets to the beneficiaries named in your trust agreement. There are, however, some assets that it is best not to place in a living trust. Experts share advice.
In Or Out?
After signing the trust documents with your lawyer, you’ll need to transfer assets into it. Property, such as the family home, is a good example of assets that can be held in trust. Savings accounts and life insurance are other examples of assets frequently held in trust. Kiplinger provides these insights on assets not to place in a trust:
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 these 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, everyday 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, and unlike collectible vehicles, they are not appreciable assets. Additionally, many states impose a tax when the vehicles are retitled, and some do not allow vehicle owners to name a beneficiary after death.
Important to Know and Do
When you work with a lawyer to create the trust, it’s also a good idea to put a Financial Power of Attorney and Medical Power of Attorney in place, enabling others to make financial and health decisions for you, should you become unable to do so. You’ll also need to appoint a trustee to manage and distribute the assets in the trust. You can include specific details about your intentions and expectations for the trustee in the trust agreement. Because trustees have significant fiduciary responsibilities, the trust agreement may require procurement of a trustee bond. A trustee bond is a type of fiduciary bond that helps to protect the interests of the trust and beneficiaries by guaranteeing the faithful performance of a trustee in accordance with the law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. The bond can be printed or e-filed from anywhere.
Life—and assets—can take twists and turns we don’t predict. That’s why it is important to periodically review and update the terms of your revocable living trust. Happy occasions, like remarrying later in life are an important time to brush up your decisions and documents. With more and more of our lives lived online, don’t neglect plans for your digital assets either. Depending on the kinds of digital assets you have, you may even want to specifically designate and prepare someone (i.e. a “digital executor”) to
access and administer them when you are no longer able to do so.
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