What can’t you put in a living trust?
What should you not put in a living trust?
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Do’s & Don’t of Creating a Living Trust.
A revocable living trust is one of several estate planning options. Moreover, a trust allows you to manage and protect your assets as you, the grantor, or owner, age. “Revocable” means that you can amend or even revoke the trust during your lifetime. Consequently, living trusts have a lot of potential advantages. The main one is that the assets in the trust avoid probate. After you pass away, a successor trustee takes over management of the assets and can begin distributing them to the heirs or taking other actions directed in the trust agreement. The expense and delay of probate are avoided. Accordingly, a living trust also provides privacy. The terms of the trust and its assets aren’t recorded in the public record the way a will is.
All of the assets placed into the trust make up the trust fund. The trust’s principal can change during the grantor’s lifetime due to appreciation or depreciation of assets and any expenses needed to maintain the trust.
Upon creating a revocable living trust, you will need to name a representative called a “successor trustee” who will manage the trust if you should become mentally incapacitated or when you die. This provides for the protection of the assets and other property contained in the trust. In addition, you’ll also need to designate the person or persons benefiting from the trust upon your death. These are your beneficiaries and are usually members of your family, but they can be a charity or other persons of your choosing.
There are advantages to setting up a revocable living trust. It allows your beneficiaries to avoid probate court, which can be time-consuming and costly. In addition, having a living trust provides for a faster transfer of assets to your heirs, and those assets will be distributed in private.
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Conversely, living trusts’ advantages are often lost or
diminished by mistakes and oversights.
Perhaps the most common mistake is to fail to transfer the legal title of assets to the trust, known as funding the trust. Notwithstanding, people often walk out of their estate planner’s office with the living trust agreement, and then they put it on a shelf. The trust doesn’t own any assets, so none of the assets avoid probate or are subject to the terms of the trust.
Another mistake is not to bring the successor trustees into the picture early enough. The successor trustees take over management of the trust after you pass away or are unable to manage the trust. Notwithstanding, the successor trustees must know you selected them for this transition to be smooth. Nonetheless, they also should have copies of the trust agreement and see where the original is located. It would be best if you also made them familiar with the assets they will be managing.
So, what can and what can’t go in a living trust?
While many assets can be used to fund a living trust, there are some assets you shouldn’t put in a living trust.
Assets that should not be used to fund your living trust include:
Qualified retirement accounts – 401ks, IRAs, 403(b)s, qualified annuities
• Health saving accounts (HSAs)
• Medical saving accounts (MSAs)
• Uniform Transfers to Minors (UTMAs)
• Uniform Gifts to Minors (UGMAs)
• Life insurance
• Motor vehicles
• However, if you have minor children, you may want to include these assets in your trust distribution.
Ordinarily, you should always seek the advice of an experienced estate planning attorney to make sure that you understand how to handle these types of assets to prevent potential problems down the road and to make sure that your assets are distributed per your wishes.
What can go in your living trust?
Even if you have established a revocable living trust, what happens to property not in the trust when you die? Having a pour-over will take care of any assets or property that you may have forgotten to include in your trust. However, these assets are subject to probate.
A good move is to be sure the custodians of your financial accounts are familiar with the successor trustees. As with a power of attorney, it is best to get to know one or more individuals at your financial institutions and introduce them to the successor trustees. Otherwise, when it is time for the successor trustees to act, they might have to go through a long process of proving who they are and entitled to manage your assets. That would substantially reduce the advantage of having a revocable living trust. If you have questions about setting up a living trust in California, what to put in your living trust, or creating a pour-over will, you should consult a well-versed professional in estate planning. Contact Steve Bliss Law Today.