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What Kind of Assets Should I Include in My Living Trust?

April 22, 2015 Douglas Davis

A few weeks ago in our blog, we discussed how to fund a living trust. To recap briefly, a living trust is basically a container with very specific instructions for how to handle the assets inside. If nothing is ever put inside the container, then the trust becomes useless. Many different types of assets can be placed into a living trust, but others should not, so in today’s blog we’ll discuss what assets are best placed in your revocable living trust and why.

Assets that should be placed in your trust

Real Estate
Placing real estate into a trust changes very little about it. The name on the title or deed may change to the name on the trust, but so long as you are the administrator of the trust, you can still deal with the real estate however you see fit, including buying and selling property. The only issue you may see with this is when refinancing a piece a property, a bank may require you to conduct business in your personal name and then transfer the property to your trust afterwards.

Because your living trust is revocable, transferring real estate to your trust should not disturb your current mortgage, property taxes or current appraisal. Also, having your home in your trust will have no effect on your being able to use the capital gains tax exemption when you sell it.  Finally, having your trust as the owner on your homeowner and title insurance policy’s may make it easier for a successor trustee to handle your affairs during a lifetime incapacity or after your death.

Bank Accounts
For all bank accounts in your name, have the name transferred to your trust. For instance, if the name of your trust is “The John Doe Trust” then you would retitle your account and assets to “John Doe, Trustee of the John Doe Trust.” If you are married and it is a joint asset and trust, both of your names will be on the trust and the titles.

Bank accounts – checking, savings, etc. should all have beneficiaries. The beneficiary of your accounts should become your trust. Even accounts you may not place in your trust, such as retirement accounts, may have your trust named as the beneficiary if you want to ensure that funds are used according to your wishes.

Property Without a Title
Tangible personal property (artwork, clothing, jewelry, cameras, sporting equipment, books and other household goods) typically does not have a formal title, but this doesn’t mean it can’t become a part of your trust. Your attorney can prepare an assignment to transfer these items to your trust upon your death or incapacitation. Directions can then be given on who receives them or if they are to be sold and the funds allocated in a specific way.

New Assets
Find out if you can take the title initially as trustee of your trust. If not, transfer the title right away. If you’re not sure how to transfer it, contact your attorney for instructions.

Assets that should NOT be placed in your trust

Unless the car is valuable and substantially increases your estate, there’s no need to place it in your trust. Additionally, if a car is owned by a trust and is in an accident, an injured party may assume you have the funds to “pay up” if you are at fault, resulting in potential legal action. Most states allow vehicles to avoid probate or to be transferred easily upon death. Your attorney will know the laws and procedures in your state and will be able to advise you.

IRA’s and other tax-deferred retirement plans
Do not change the ownership of your retirement accounts to your living trust, rather, name the trust as the accounts’ beneficiary if that’s where you would like the funds to go. But also be sure to consider all your options, which could include leaving the funds to your spouse, children, grandchildren or other individuals, a charity or a combination of these.

Whom you name as beneficiary will determine the amount of tax-deferred growth that can continue on this money after you die.  Most married couples name their spouse as beneficiary because after your death, your spouse can “roll over” your tax-deferred account into his or her own IRA and name a new beneficiary if desired. A non-spouse beneficiary can also inherit a tax-deferred plan and roll it into an IRA to continue the tax-deferred growth, but only a spouse can name additional beneficiaries.

As you can see, a trust is a great place for most of your assets, however, there are certain items and situations where an asset is best left out. The overall design of your unique estate plan, including your trust, will be important in determining what should go into the trust and what should not. That’s why it’s critical to work with an attorney who is experienced with trusts and estate planning to ensure your assets are kept safe and used according to your wishes.