Trusts are legal entities, like an LLC or a corporation. You can place assets into trust, and you can take assets out of trust. You place assets into trust by retitling the asset. For example, your checking account statement comes with your name and address on it. When you go to the bank and fill out the paperwork to move your checking account to trust, the statement will then come to you, but the word “trustee” will follow your name, assuming you are the trustee of your own trust. This shows that the checking account is in trust because the statement is being delivered to the trustee of the trust.
However, we do not always recommend moving checking accounts to trust. Usually, this involves closing out your former checking account and opening a new one in the name of the trust. This is not always practical because most people have direct deposit set up, and auto bill pay on their checking account.
So, what should you put into your trust? Well, to give a lawyerly answer, it depends! But it depends on your estate planning goals, your plans for the next few years, and the type of trust that you established. That being said, a typical client of ours places their home into a revocable trust. For this article, we are assuming that the trust being discussed is revocable, and that the clients are the grantors and the trustees of the trust.
We recommend deeding your home to trust because you can’t put a beneficiary on your deed, and it isn’t always tax advantageous to add your kids or beneficiaries’ names to your deed. Placing your home into trust is a simple way to fund your trust, and avoid probate no matter who passes away first, and it has little effect on your day-to-day life. You will still need to make the mortgage payments and pay the real estate taxes; it should not have negative tax consequences. Also, Ladimer Law always includes deeding your home to trust so the client doesn’t have to worry about doing this later down the road. You only get peace of mind when things are completed, not just started!
Another easy way to move assets to trust is to make your trust the beneficiary of an asset, such as a brokerage account or life insurance policy. Instead of moving the whole account to trust, you individually will stay as the owner of the account, but when you pass away your trust is the beneficiary, not individual people. The purpose of this is to have all your assets in one place before distributions are made to your beneficiaries. The reason why we like having all assets in one place is that it makes it easier to pay any end-of-life expenses, taxes, and administration costs before the beneficiaries get their inheritance. Again, I highly recommend you work with an estate planning attorney (like myself 😉) before doing this.
Lastly, we don’t always recommend leaving retirement accounts to trust. These include 401Ks, IRAs, and any other asset that is governed by the ERISA laws. The reason why is that leaving retirement accounts to trust can cause negative tax consequences to the beneficiary. There is more complex planning that can be done in trust to address this, but again we are speaking about a basic revocable trust. To reiterate, some clients do leave their retirement accounts to trust because it can simplify the distributions. Depending on your family and estate planning wishes, leaving everything in trust to simplify the process may outweigh the higher taxes.
So, if you are going to take away anything from this article it is that you should 1. Fund your trust, 2. Work with your estate planning attorney and follow her instructions on what to put in your trust, and 3. Just signing your estate planning documents isn’t enough, you need to put assets into your trust!
If you missed it, here is a featured article on trust funding https://ladimerlaw.com/what-is-trust-funding/
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Ladimer Law specializes in estate planning. We protect our clients, their heirs, and their assets by listening closely, knowing the law, and executing estate plans that fit and evolve.