This month we will tackle what you should not place in your living trust. Next month we will cover the longer list of what you should place in your trust.
Retirement accounts: Accounts such as a 401(k), IRA, 403(b), and certain qualified annuities should not be transferred into your living trust. Doing so would require a withdrawal and likely trigger income tax. Instead, it’s possible to name the trust as the primary or secondary beneficiary of the account, which would ensure the funds transfer to the trust upon your death.
Health savings accounts or medical savings accounts: Since they already allow you to use the money tax-free for allowable medical expenses, they cannot be transferred to a living trust. However, you can name the trust as the primary or secondary beneficiary like retirement accounts.
Certain bank accounts: It is not advisable to transfer accounts you use to actively pay your monthly bills unless you are the trustee and granted full control of the trust assets. For many people, keeping these accounts out of the trust is easier. Designating beneficiaries on these types of accounts comes in handy. Review these accounts for a payable-on-death (POD) option that allows you to add primary and secondary beneficiaries.
Vehicles: Generally, everyday vehicles like cars, boats, trucks, motorcycles, airplanes, or recreational vehicles like jet skis are not placed in a trust because they often do not go through probate, and unlike collectible vehicles, they are not appreciable assets. Additionally, many states impose a tax when the vehicles are retitled, and some do not allow vehicle owners to name a beneficiary after death.
The flexibility these trusts offer helps to ensure that your assets are protected during your lifetime and pass easily to heirs after your death. Schedule your initial consultation to discuss if a trust or a will is best for you.