What Items Should Be Put Into a Living Trust?

By Bryan Driscoll, J.D.

What Items Should Be Put Into a Living Trust?

By Bryan Driscoll, J.D.

People create trusts during their lifetime as a way to identify the various assets they own, and determine how they want each asset distributed upon their death. They are also a great tool used to avoid probate costs.

There are two types of living trusts: revocable and irrevocable. A revocable living trust allows you to change distribution instructions and freely transfer assets. An irrevocable living trust, in contrast, cannot be modified, amended, or terminated except under certain conditions.

Living trusts must have assets titled in the trust's name.

When you create a living trust, you are taking a big step forward in the estate planning process. To make the trust legal, however, there are two steps you must take after the trust is drafted:

  • Sign the trust.
  • Fund the trust.

Signing the trust is the easy part, but funding the trust can be more complicated. You fund it by inputting either money or assets (potentially both if you prefer). Titling your assets in the trust's name is a fairly simple process. For each asset, you need to change the owner of the item, whether it's a bank account or a car. Taking this step of moving your possessions into your trust will have substantial benefits for your heirs.

Living trusts avoid probate costs.

Whether you choose a revocable or irrevocable living trust, the document you create provides substantial cost savings. A living trust should be part of every estate plan.

Every state requires probate when someone dies with assets. The court reviews any will and determines how to distribute the deceased's assets. Without a will, the court will distribute assets according to state law, taking a portion of the money as payment for service.

If you're looking to avoid probate costs, you can do that with a living trust. Because you have titled your assets in the trust's name, you don't die owning anything requiring probate, and your estate avoids all the time and expense associated with it.

There are no limits to the items you can place in a living trust.

You can put everything from your vacation home to your car in your living trust. Doing so will help to ensure your heirs receive the items you want them to receive in a timely and cost-effective manner.

But that doesn't mean you should place everything into your living trust. A person must own retirement accounts in their individual name to receive tax deferments. If you transfer a 401(k) into a living trust, the IRS treats this as an early withdrawal. Therefore, you will be taxed and assessed an early withdrawal fee. To leave your 401(k) assets to an heir, you can name them on the account as a payable on death beneficiary.

Living trusts are a great way to ensure your estate avoids the time and cost of probate. Whether you want to create a revocable or irrevocable living trust, you need to make sure it is set up, executed, and funded correctly. Doing so will protect both your assets and heirs.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.