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What Assets Should You Put in Your Trust?

Last month we looked at what assets should not be placed in a trust. This month we look at some assets that should be placed in a trust.

Magnifying the word assets

A revocable living trust is a great tool to help your assets pass smoothly to your beneficiaries. A revocable living trust is an instrument created for the purpose of protecting your assets during your lifetime. It also creates an easy way to pass your assets after your death.

There are several benefits of creating a trust. The chief advantage is to avoid probate. Placing your important assets in a trust can offer you peace of mind of knowing assets will be passed on to the beneficiary you designate, under the conditions you choose and without first undergoing a drawn-out legal process. A trust can also provide you with some level of privacy regarding your estate's information. Another feature is that placing your assets in a trust will help protect them should you become incapacitated.

The cost of establishing a trust will likely be offset by other savings down the road, such as by eliminating probate and legal fees, appraisals, and associated costs.

Many assume that they are ready to roll once they sign the trust documents at their attorney’s office. Setting up a trust, however, is only half of the solution. For a revocable living trust to take effect, it should be funded by transferring certain assets into the trust. Often people fund a living trust with real estate, financial accounts, life insurance, annuity certificates, personal property, business interests and other assets. The most notable types are:

Real estate: Many people wonder whether placing their house in a trust is a good idea. Considering that your home is potentially one of your largest assets, living trusts can be especially beneficial as they can transfer real estate quickly.

Financial accounts: There are several types of financial assets that can be owned by a trust, including Bonds and stock certificates, Shareholders' stock from closely held corporations, non-retirement brokerage and mutual fund accounts, Money market accounts, cash, checking, savings accounts, annuities, and Certificates of Deposit (CDs) (However, retitling a CD can trigger early-withdrawal penalties depending on the financial institution), and Safe-deposit boxes.

Funding your trust with bank and brokerage accounts generally requires new account paperwork in the trust's name and signed authorization to retitle or transfer the asset. Likewise, physical bonds and stock certificates require a change of ownership to be completed with the stock transfer agent or bond issuer. You may also wish to fund the trust with a checking or savings account, though it is important to carefully consider any implications if these accounts require regular withdrawals or activity.

Life insurance: Many people ask if it is a good idea to put life insurance in a trust. The benefits include protecting it from creditors and making it easier for your loved ones to access the money by avoiding probate. Naming the living trust as a life insurance beneficiary may have some risks. If you are the trustee of your revocable living trust, all assets in the trust are considered your property. In this instance, life insurance proceeds are counted as part of your estate’s worth and could create a taxable situation should you reach the IRS threshold for taxable estates. In 2023, the estate tax is $12.92 million for individuals and $25.84 million for couples. Funding a trust with life insurance and annuity contracts generally requires a change of ownership form submitted to the contract issuer.

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