Which Assets to Place in a Living Trust

A revocable living trust is a trust that a person, the “trustor” in legal terminology, creates in their will during their lifetime. It designates property that should be placed in the trust and a trustee to manage the property. It further identifies the people or entities that should benefit from the trust, the “beneficiaries.”

Avoiding probate is the reason that motivates most people to create living trusts. A living trust is often a key element of an estate plan.

A trustor must decide which assets to place in a living trust and which assets to distribute in other ways, e.g., through traditional inheritance via a will in probate.

There are several advantages and disadvantages for a person to consider when adding a living trust to their estate plan. One of those is the property that comprises their estate. A person also wants to keep in mind that living trusts are revocable, which means the person who creates one can change the terms, revoke the trust during their lifetime, or revoke it completely if they so choose.

Which Assets Should Not or Cannot Be Placed in a Living Trust?

There are several assets that a person either cannot or clearly should not put in a living trust. They are as follows:

• Retirement accounts. Accounts such as a 401(k), IRA, 403(b), and certain qualified annuities should not be placed in a living trust during the trustor’s lifetime. Transferring these accounts to a trust would require their funds to be withdrawn and will likely require that income tax be paid on them. A trust can be named as the beneficiary of this type of account. This would mean that the funds would be transferred to the trust upon the death of the owner, the trustor of the trust;
• Health Savings Accounts: The owner of these accounts can use the funds in them tax-free for allowable medical expenses. For this reason, they cannot be transferred to a living trust. Like retirement accounts, however, a person can name the trust as the primary or secondary beneficiary of these accounts;
• Accounts That the Trustor Still Uses: It is not advisable to transfer accounts a person uses routinely to pay bills to a trust unless the person is the trustee and granted full control of the trust assets. A person can designate a beneficiary for these accounts with the institution in which the account is set up. A person should review these accounts for a payable-on-death (POD) option that allows the owner to designate beneficiaries. Then these beneficiaries receive the funds in the account upon the death of the owner;
• UGMA/UTMA accounts. Uniform Gifts to Minors (UGMA) Accounts or Uniform Transfers to Minors (UTMA) Accounts are established to benefit minor children. If these were to be placed in a trust, the trust might end up in probate if the trustee predeceased the minor children. An acceptable alternative is to name a successor custodian to step in if the primary custodian passes away; and
• Vehicles: The vehicles that a person uses regularly, such as cars, boats, trucks, motorcycles, and airplanes, would not be candidates for placement in a living trust. A vehicle that a person regularly uses would not go through probate in any event or appreciate in value as collectible vehicles do.

In addition, many states impose a tax when vehicles are retitled. Also, some do not allow vehicle owners to name a beneficiary who can take ownership after the owner passes away. Lastly, it can be impractical to maintain the insurance and registration under the trustee’s name.

How Can You Determine Which Assets Are Best for a Living Trust?

It might be challenging to decide which assets would be best suited for a living trust, especially when the trustor owns a lot of property. A good place for a trustor to start is by creating an inventory of their property and listing the value of the assets on the list, which can aid informed decision-making.

There are several advantages to placing higher-value property in a living trust. These are the items that a person would want to keep out of the probate process.

Living trusts also help maintain privacy if someone does not want ownership of an item to become known to the public. Unlike other types of trusts or estate documents, the living trust will not become a public record upon a person’s death.

Also, remember that assets subject to frequent sales or transfers would not be good candidates for a living trust. These assets would bounce back and forth into and out of the living trust when transfers occur. The paperwork would be inconvenient to manage.

After considering these things, a person may be ready to decide which items would be beneficial to keep in a living trust. Some examples of assets that people frequently include in their living trusts are as follows:

• Valuable, collectible furniture;
• Expensive collectible art;
• Collectible antiques and family heirlooms;
• Other valuable collections, such as coin collections;
• Expensive jewelry;
• Brokerage accounts that are not retirement accounts;
• Safe deposit boxes;
• Annuities;
• Interests in small businesses, such as a limited partnership;
• Copyrights and other intellectual property interests;
• Real estate;
• Securities, like stocks and bonds.

These are just a few examples, and other assets may be appropriate also.

What Other Assets Might Not Be the Best for a Living Trust?

In addition to the properties mentioned above, there are some other assets that simply cannot be transferred through a living trust. These assets include cash, certain retirement benefits, and most life insurance benefits. A person should consider alternate ways of transferring these assets in an estate plan, such as a payable-on-death or transfer-on-death account.

Of course, life insurance is payable directly to a named beneficiary upon the death of the insured. And there are other options for life insurance policies as well.

Other assets that can be legally placed in a living trust but may present some obstacles, including the following:

• Interests in Larger Businesses: Larger businesses, such as partnership interests, are more complex and could present issues if a trustee becomes the manager of the business interest through a trust. Interests in smaller businesses are easier to identify and might accommodate a trustee more easily.
• Real Estate: As noted above, real estate can be a good asset for a living trust because it is often valuable. However, this is not true when the trustor co-owns the property with someone else. For example, if a person owns property in joint tenancy, the joint tenant automatically becomes the owner upon the death of another joint tenant through the right of survivorship.

There might be a problem with property on which there is a mortgage. It could require putting the title to the property in the name of the trust. Some mortgage lenders may be reluctant to do this.

These items would be better suited to pass through probate or in other ways, i.e., through the right of survivorship. However, it is important to remember that because a living trust is revocable, a person can always amend it if conditions change after it is set up. Property can be added, and property can be removed. The important thing is to make changes correctly so they are legally enforceable.

Do I Need the Help of a Lawyer for Assistance With a Living Trust?

There are complications to creating a living trust to which an online form may not alert a person. It takes planning, foresight, and some legal know-how. A local living trust lawyer can help you put things into perspective and decide which assets would best suit your living trust and which should pass through probate or in other ways.

A lawyer can also draft your living trust agreement, amend your living trust, and represent you in court if issues arise. Your lawyer can make sure that your living trust achieves your goals.