Do I Need a Living Trust?
If you are developing an estate plan, you have likely heard about living trusts. These structures help people avoid probate costs and delays while allowing designated trustees to manage assets after death. This proves especially valuable when heirs include minor children or adults unable to handle substantial inheritances.
Assets That Do Not Belong in a Living Trust
Retirement and Tax-Deferred Accounts
Certain assets should never be transferred into a living trust, regardless of size. The IRS treats transfers of IRAs, 401(k)s, tax-deferred annuities, health savings accounts, and medical savings accounts as distributions. This triggers income taxes and potential penalties on the entire account value.
While trusts can sometimes serve as beneficiaries of retirement accounts, this approach carries risks. Recent SECURE Act changes mean trustees might be required to deplete IRAs within ten years following your death.
Vehicles and Personal Property
Cars, boats, and motorcycles typically should not enter trusts for practical reasons. Retitling these assets creates fees and taxes. Insurance companies may refuse coverage for trust-owned vehicles, making the administrative burden outweigh the benefits.
Assets That Belong in a Living Trust
Real Estate
Your primary residence and other properties are ideal trust candidates. This minimizes transfer hassles for heirs and prevents probate in multiple states if you own property across state lines. Obtain a new deed transferring ownership to the trust. Note: refinancing may require temporarily moving the property out of the trust into your name, then back again.
Financial Assets
Stocks, bonds, mutual funds, CDs, money market funds, savings accounts, and safe deposit boxes work well in trusts. This requires paperwork and potentially opening new accounts registered to the trust itself.
Critical Implementation Steps
Fund the Trust
After creating your trust, transfer assets by retitling them carefully. Ensure all desired property has been properly documented and transferred. Review your trust every few years alongside your broader estate plan. Designate a secondary trustee if you serve as the primary trustee.
Final Considerations
Living trusts excel for residents in states with costly, burdensome probate processes. They enable specific asset distribution – for example, providing a large inheritance at age 40 rather than 30. This control, probate avoidance, and asset protection make trusts powerful planning instruments.
Contact The Stegall Law Firm to find out whether a living trust is the right choice for your estate plan. We can help you determine which assets to include and build a comprehensive strategy for your family.
