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Which Assets Belong in Your Living Trust – and Which Don’t?

Guidance on How to Fund Your Trust

If you’re considering setting up a living trust, know that there is more to it than simply meeting with a lawyer and signing the appropriate paperwork. Your trust won’t have any power until you fund it. To do so, you’ll need to strategize about which assets you’ll put in the trust, and then complete the necessary transfers.

For most people, there are assets that make sense to transfer to your trust, but others that you’re likely better off leaving outside the trust. Below we’ll dig into the details of both. First, though, let’s discuss the basics of a living trust.

Why Choose a Living Trust?

If you’re looking to manage your assets during your lifetime and find a way to easily pass them to your beneficiaries when you die without going through the hassles of the court system, a living trust is for you. This legal structure allows your estate to bypass probate, which is advantageous for several reasons.

Not only is probate complex, time-consuming and expensive, it also means your estate information will become public record. A trust, on the other hand, allows you to keep your finances private. Furthermore, this legal instrument gives you more control over which of your heirs get certain assets, and even when they are able to access them. For example, you could choose to pass some of your assets to your children when they turn 18, with a percentage held back until they reach age 40.

How to Fund Your Trust

Your trust itself is just a legal framework to dictate the future distribution of your assets. It will only apply to the assets you include, meaning others outside the trust will still be subject to probate. So, once your trust is created, you’ll need to undertake the process of retitling each asset you wish to include in your trust. To do this, you’ll need to contact the financial institution associated with each asset and ask about their procedure for changing the name on the asset from your own name to the trust’s. Sometimes, it’s as simple as signing a form. Other times, you may be asked for more information or a certificate of trust.

When you are the trustee of your own trust, you have the flexibility to move assets in and out of it during your lifetime. Moving your assets around in this manner will not trigger any tax events, so there is no concern there.

Which Assets Belong in Your Trust?

You should use your trust for any assets that would typically need to pass through probate upon your death, as well as those where the disposition is best done through the trust due to your specific wishes. Many of your accounts will be excellent candidates to be held in trust:

  • Liquid Assets: Put your savings and checking accounts through banks or credit unions into your trust.
  • Traditional Investments: This includes the assets you own through a brokerage account, but not those you hold in your retirement accounts.
  • Real Estate: Moving your home into your trust can save your heirs significantly on probate costs.
  • Personal Property: Your possessions don’t have title documents, but you can still move most of the possessions in your home into your trust using a simple list.
  • Business Interests: If you are a full or partial business owner, allocate these interests to your trust.
  • Intellectual Property: Patents, trademarks, and published works should be put in trust.
  • Debts You are Owed: Add debts that are owed to you to your trust.
  • Safe Deposit Boxes: Whether they contain cash, documents, jewelry, or more, ensure your trustee would be able to access it upon your death.

Which Assets to Keep Out of Your Trust

A trust works very well for many of the assets you likely own, as listed above, but it’s not the best place for all assets. Opt to keep all of the following out of your trust:

  • Retirement Accounts: IRAs, Roth IRAs, 401(k) plans, and 403(b) plans can only belong to an individual person, not to an entity like a trust. Still, you can designate your trust as the beneficiary of your retirement plans to ensure these assets are handled according to your wishes.
  • TaxAdvantaged Savings Accounts: If you have a Health Savings Account (HSA), a Flexible Spending Account (FSA), or a Dependent Care FAS, simply list your trust as the beneficiary on these accounts, too.
  • Certificates of Deposit: Some financial institutions will allow you to move a CD into a trust, but know that retitling it could be viewed as an early withdrawal and lead to fees.
  • Life Insurance Policies: Your death benefit will already transfer based upon your beneficiary designation, there’s typically limited benefit to putting life insurance into a living trust. Still, you’re permitted to list the trust as a beneficiary.

Final Thoughts

A living trust can be an excellent way to manage your assets while you’re still alive and ensure they will be taken care of exactly in accordance with your wishes. While some assets may be better suited for trusts than others, the important thing is that your assets go to your intended beneficiaries on the timetable you prefer. A living trust offers one way to accomplish just that.

 


Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.

 

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PACES FERRY WEALTH ADVISORS IS A REGISTERED INVESTMENT ADVISOR WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. Registration does not imply any level of skill or training. Information presented on this site is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any product or security. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites.