A trust is an essential part of any estate plan. It can provide a way to protect your assets now and assist in distributing them after your death. An experienced estate planning attorney can help create a trust that meets your needs. While most people think that a trust will take care of all their assets, there are some assets that should not or cannot be put into a trust.
What is a Trust?
A trust is a legal entity that holds property or other assets on behalf of a trustor. The trustee is a party that oversees the property on behalf of the trustor and for the benefit of the beneficiaries. A trust is a way to protect your assets and ensure that they are properly distributed after your death. Trusts have some potential tax benefits for beneficiaries, and they may streamline the probate process. There are various types of trusts, including the revocable living trust that allows you to make changes during your lifetime.
Advantages of a Trust
A trust is a good option when you want to protect some types of assets. Many types of assets can and should be held in a trust. Real estate is one of the most common assets that can be held in a trust. Savings accounts or money market accounts are often placed in trusts. The main advantage of a trust is that it can reduce the taxes that beneficiaries have to pay after your death. A trust can also reduce the paperwork involved and thus can reduce stress on your loved ones. A trust provides clear instructions for how you wish to distribute your assets and property.
Assets That Should Not Be Put in a Trust
As advantageous as a trust may be, there can be some assets that are best left out of a trust. You will want to take care when placing these items into a trust.
Life Insurance
Life insurance can be put into a trust and may make things easier for your loved ones after your death. However, there can be some drawbacks in naming the trust as the beneficiary. Life insurance is included in the assets of the estate, and this amount could surpass the IRS’s limits for taxable estates. This means that it might create a situation where the estate will need to pay taxes on the proceeds from a life insurance policy.
Retirement Accounts
It can be counterproductive to place IRAs and other retirement accounts into a trust. To do so, you would need to withdraw the funds, which could trigger a big tax bill. In effect, you could end up reducing the accounts by a significant amount due to taxes. Instead, you can name the trust as a beneficiary so the funds can be transferred to the trust after your death.
Checking Accounts
Bank accounts can be included in a trust. However, you will want to be careful. If you are not the trustee of the accounts or have full control over them, try to leave out checking accounts or other accounts that you use on a daily basis to pay bills. By leaving the account out of the trust, your loved ones can handle basic estate needs without having to go through a lot of trouble.
Cars and Other Vehicles
Regular vehicles that you own are usually best left out of the trust. This includes your car or SUV, boat, RV, motorcycle, snowmobile, and airplane. This type of property does not appreciate in value and generally does not need to go through probate. There is a tax that you must pay if you retitle a vehicle. You can make things easier and less complicated for loved ones by leaving these out of the trust.
There may be other assets or property that are best left out of a trust. Discuss your specific needs with an experienced estate planning attorney to learn your options. To find out more and to request a consultation, contact us at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or online.