Now you have created your revocable trust, you look forward to avoiding or minimizing probate. But now the big deal is to determine what assets you should fund into the trust.
Interestingly, not all assets should be placed in a revocable trust.
The purpose of a revocable trust is to have a legal protection over your assets that will benefit you during your lifetime, and make the inheritance process quick and seamless for your loved ones. But you should be very careful in the assets you fund into the trust. While some just can’t go, some shouldn’t because trying to fund them into a trust will do more harm than good.
So, let us first look at those assets not to place in a trust
Assets that should not be placed in a revocable trust
1. Retirement accounts
Retirement accounts such as 401(k)s and IRAs shouldn’t go into a revocable living trust. The reason is simple. These assets already have beneficiary designation. They will pass to the designated beneficiary regardless of what your will or trust says. Having a different beneficiary in your trust will only serve in causing conflict due to discrepancy.
You are free to rename your car to take the name of your revocable trust. But in some states, this action is considered as a sale, and you will be charged a tax for changing ownership of the car. So if you consider funding your car into a revocable trust, you should check your state laws to know what holds.
3. Health and medical savings accounts
Health savings accounts and medical savings account are created to foot medical bills that are subject under their provisions. These assets cannot be given the name if the trust. If you must, you can only name the trust as the primary or secondary beneficiary of the account.
4. UTMAs and UGMAs
Uniform transfers to minors (UTMAs) and uniform gifts to minors (UGMAs) are created to secure the financial welfare of a minor. Hence, the minor is the sole owner if the account, and not a trust.
That aside, there must be a custodian managing such accounts on the minor’s behalf. A successor custodian should also be named to step up should the primary custodian passes away before the minor comes of age.
5. Life insurance
Life insurance goes to the beneficiary designated within the policy regardless of what any will or trust says. You shouldn’t place life insurance into your revocable trust not because it cannot go but because there is absolutely no need. As it is, life insurance proceeds will pass to the designated beneficiary tax-exempt and outside probate. So there is really nothing a trust can do here that has not already been done.
6. Non-retirement investment and brokerage accounts
Non-retirement investment and brokerage accounts include any property held in an account that bears your name alone and those you jointly own with other partners. An attempt to retitle such assets into the name of the trust will attract income tax. To attach such assets with a trust, you have to name the trust as the beneficiary, rather than title the trust as the owner.
7. Stocks and bonds held as certificates
The process of retitling stocks and bonds held in a certificate form to a revocable trust is tedious and expensive. It is better to keep the certificates in an account that you have already placed into the trust.
Assets that can go into a revocable living trust
1. Bank accounts
All bank accounts including money markets, checking, savings, and CDs can be placed into a revocable trust. However, you need to be wary with CDs because some banks consider the retitling as if you are withdrawing the funds. This will therefore attract monetary charges.
2. Non-qualified annuities
Non-qualified annuities can easily be retitled into the name of the trust. You can as well name the trust as the beneficiary.
3. Real estate
Whatever mortgage that’s on your property will follow the property inti the trust. Just be sure to check with your lender to know if there are any specific steps to take.
4. Personal property
Your personal belongings like jewelries, wears, books, laptops, pets, airplanes, and vehicles, etc.
5. Returns on investments
Your returns such as interest can go into your revocable trust
To ensure you don’t run into jams, talk to an estate planning attorney near you