A living trust is a legal document that allows you to designate a trustee to manage and distribute your assets according to your wishes after your death. Essentially, it’s an estate planning tool that helps manage assets during life and after death by transferring them into a trust overseen by a chosen trustee.
The goal is often to avoid the lengthy probate court process and provide more control over how your assets are distributed to beneficiaries. However, there are some items that shouldn’t be included in your living trust.
Vehicles
Including your vehicle in your living trust is risky. Any accident in which the vehicle is involved could result in a lawsuit, in which case, the trust would be a named party. This means that the plaintiff’s attorney would get full knowledge of your estate plan. Also, many insurance companies either won’t insure cars owned by a trust or charge a higher rate for coverage.
Annuities and Retirement Accounts
Retirement accounts are usually tax-deferred and transferring them to a trust would require a withdrawal, which would likely trigger income tax and perhaps penalties for early withdrawal. Instead of putting an IRA in a trust, you can name the trust as the beneficiary on the retirement account. This ensures the funds transfer to the trust upon your death. You can also specify how the funds should be divided among your beneficiaries.
Life Insurance Policies
Simply naming a beneficiary(s) on your life insurance policy can help you avoid any potential tax implications that could result from including it in your trust. A life insurance policy is an effective tool for ensuring your heirs have funds to cover final expenses or settle any outstanding debt after your passing.
Foreign Assets
Some international assets may not be eligible for inclusion in your living trust. It’s a good idea to check with an estate planning attorney in the country in which the assets are held for clarification.
Checking and Savings Accounts
Unless you’re the trustee and granted full control of all assets, you may run into complications trying to pay monthly bills out of these accounts. Instead of putting them in a trust, you can consider making them payable on death (POD). This allows you to designate beneficiaries to receive the account’s assets when you die, and it bypasses probate.
If you’re considering establishing a living trust, use an experienced estate planning attorney who can ensure you have a comprehensive, legally binding plan that will eliminate conflict, confusion, and stress following your death.
