I learned early in my practice at BruegelPC that not everything belongs in a living trust. Over the years, clients have asked why some assets shouldn’t be included. It’s an important question with potential pitfalls if overlooked. Let me share a few key insights to protect your assets effectively.
According to the California Courts website, you should not put retirement accounts, vehicles, or 529 college savings plans into a living trust. This is because retitling these assets can cause tax issues or other complications. Always consult a legal expert for personal advice.
Introduction to Living Trusts
A living trust lets you manage your assets during your lifetime and dictates their distribution after your death, often avoiding probate.
To put it briefly, by putting your property into a trust, you can skip the probate process, which can take a lot of time and cost a lot of money. A living trust also keeps your property details private, so they aren’t made public. It can help lower taxes on your estate and protect your property from people you owe money to.
To put it simply, you can name someone to manage the trust and follow your instructions on how to distribute your property. It’s important to think carefully about your trust and update it when your life changes.
Assets You Should Avoid in Living Trusts
Avoid placing retirement accounts such as IRAs and 401(k)s in living trusts because their built-in beneficiary designations override trust instructions.
Generally speaking, don’t put assets that have a co-owner or a payable-on-death designation into a trust. These assets will go straight to the designated person when you die. Also, life insurance policies usually shouldn’t be in a living trust because they already have named beneficiaries.
For the most part, make sure all assets meant for the trust are correctly titled in the trust’s name to prevent confusion or trouble when distributing them. It’s a good idea to talk to a legal or financial expert to figure out the best way to title your assets and set up a living trust that suits your needs and goals.
Retirement Accounts and Living Trusts
As we concluded before, retirement accounts grow your savings for the future, while living trusts ensure your assets are managed and distributed according to your wishes.
If you think about it, a retirement account is a place where people save money for when they stop working. It’s usually managed by a bank or other financial company. Examples include employer-sponsored plans like 401(k)s and individual retirement accounts (IRAs). The idea is to have money available to live on during retirement.
A living trust is a different tool. It’s a legal arrangement where someone puts their assets, like money or property, into a trust while they are alive. This trust then manages and distributes these assets when they pass away. By using a living trust, people can avoid the lengthy court process called probate, keep their financial matters private, and potentially reduce estate taxes. To put it briefly, unlike a will, a living trust also lets someone manage their assets if they can’t do so themselves, for example, if they become very ill.
Retirement accounts help save money for income after you retire, while living trusts deal with how your assets are handled and given out after you die. You can even name a living trust as the beneficiary of a retirement account, which can give you more control over how that money is used after your death.
Both retirement accounts and living trusts are important tools for planning your financial future and deciding what happens to your assets when you die. It’s essential to think about your personal financial goals and needs when using these tools. Talking to financial and legal experts can help you make smart choices to get the most out of your retirement accounts and living trusts.
Vehicles and Living Trusts
In the preceding section living trusts can be as crucial to your estate plan as vehicles are to transportation, enabling the seamless transfer of your assets during your lifetime.
Simply put, by doing this, you can skip probate and make sure your belongings are given out as you want after you die.
When it comes to cars and living trusts, there are a few things you need to remember. First, you have to transfer your car titles to the trust’s name. This means filling out some forms and paying any fees.
Once your cars are in the living trust, they will be managed by the trustee you chose. Essentially, this person will follow the trust’s rules, meaning they can use or sell the cars as you instructed.
It’s important to check your living trust often to make sure it still matches what you want. If you get new cars or change your mind about your current ones, you need to update the trust.
Including your cars in a living trust can be a good idea. It helps you avoid probate, makes it easier to distribute your assets, and gives you peace of mind knowing your cars will be handled as you wish.
Everyday Checklists for Trust Assets
From what has been mentioned before everyday checklists for trust assets are key to ensuring meticulous management and safeguarding of one’s wealth.
At the base, regularly checking your assets like real estate, stocks, and personal property helps make sure you’re taking good care of them. Watching how your investments are doing and making sure they match the trust’s goals is important for keeping the trust safe. Keeping an eye on any changes in laws that might affect your assets is important to stay within the rules.
By definition, regularly talking to financial advisors and trustees helps keep everything transparent and accountable. Doing regular check-ups on the trust’s financial health can help spot any risks or chances to grow. Staying organized and keeping accurate records of all transactions and communications related to the trust is very important for proper management. Being diligent in these tasks can help protect the trust assets and ensure they are managed well for the beneficiaries.
Rounding it Up
As already explained in order to ensure the effectiveness of your living trust, it is important to avoid certain assets such as retirement accounts, insurance policies, and jointly-held property.
What BruegelPC is recommending to read about is, these assets may have legal complications or tax implications that could negate the benefits of a living trust. By carefully considering what assets to place in a trust, you can better protect your estate and legacy.
References
Here is the literature that I was using for drafting this article:
- “Living Trusts for Everyone: Why a Will is Not the Way to Avoid Probate, Protect Heirs, and Settle Estates” by Ronald Farrington Sharp, Rocky Mountain Press, Ronald Farrington Sharp
- “The Living Trust Advisor: Everything You (and Your Financial Planner) Need to Know about Your Living Trust” by Jeffrey L. Condon, McGraw-Hill Education, Jeffrey L. Condon
- “Living Trusts for Everyone: Why a Will is Not the Way to Avoid Probate, Protect Heirs, and Settle Estates” by Ronald Farrington Sharp, Globe Pequot, Ronald Farrington Sharp