What Assets to Put in a Living Trust?

By Beverly Bird

The greatest advantage to establishing a living trust is that it avoids having your assets pass through probate when you die. Another plus exists if your beneficiaries are not especially frugal or haven’t yet reached the age of majority. Your trust can distribute their bequests in installments or when they reach a certain age. Before these things can work in your favor, however, you must fund the trust by transferring your assets into it.

Real Estate

If you own property in another state, transferring it to your trust will avoid a separate probate proceeding in that state when you die. You can transfer deeds to property within your state as well, even your home. If there’s a mortgage against the property, however, you must refinance it into the name of your trust. This can be a difficult process with some lenders.

Financial Accounts

Although you might not want to fund your trust with the checking account you use to service your monthly bills, you can do so without complication as long as you are the trustee and you manage the trust. You would simply pay your monthly bills through your trust. You should also transfer savings and investment accounts that you don’t tap into regularly, as well as stocks, bonds, safe deposit boxes, certificates of deposit, money markets and mutual funds.

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Life Insurance

Whether you should name your trust as beneficiary of your life insurance policy depends on the amount of the policy’s death benefit. Because you own a revocable trust, you are essentially naming yourself as beneficiary when you direct that the proceeds should go to your trust. Its value becomes part of your estate for estate tax purposes when you die. As of 2011, the federal government only taxes estates with assets totaling more than $5 million, but that is subject to change. The tax rate over $5 million is 35 percent. If your life insurance proceeds would push the value of your trust over $5 million, you should speak with a tax professional or attorney before you name the trust as your beneficiary.

Questionable Assets

Your family car is most likely going to depreciate in value and it may have a loan against it. There's little benefit in transferring ownership of such a vehicle, and there could be a downside. If you’re involved in a fender-bender, the other party might be more inclined to sue if your trust owns your car, because this implies wealth and assets at your disposal. If you own a 1935 Bentley, however, there’s some cash value in it which is likely to remain intact. This could be worth transferring to your trust. Check with a professional before including retirement benefits; there may be negative tax ramifications.

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Guidelines for Using a Pour-Over Will in a Living Trust
 

References

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