Summary:
Proper funding of revocable living trusts is essential to the success of estate
plans that include trusts. It is vital to know which assets should, and which
should not, be funded into a living trust. With certain assets, transferring
them into a living trust can have very damaging tax consequences. With other
assets, transferring them into a trust may not be necessary to gain the
advantages of probate avoidance, but depending on your circumstances, you might
have other goals that dictate funding that asset into the trust anyway.
You've
taken most of the steps to completing the process of getting an estate plan in
place. You decided to get started. You reached out to an attorney. You decided
on your executors, trustees, power of attorney agents, as well as who will
receive your wealth. You've signed the documents to put that plan in place. If
your plan includes a revocable living trust, though, you have one more essential
step: funding your trust.
One of
the keys to the success of your estate plan is knowing what assets should go
into your trust, and which ones you should leave in your own name. Its
important to know what to transfer and what to avoid transferring, because in
some cases, the results can be very harmful, such as triggering negative tax
consequences or exposure to creditors.
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| Legacy Assurance Plan and Revocable Living Trust |
Generally speaking, your assets that have a pay-on-death or transfer-on-death beneficiary designation on them are assets you need not fund into your trust. Those death beneficiary designations mean that those assets already avoid probate, so they already avoid the probate administration process.
For some assets, transferring them into a trust can be quite damaging to
your wealth. For example, if you transfer ownership of your life insurance from
your name to the name of the trustee of your living trust, that may increase
the exposure to creditors that policy will have. Qualified retirement accounts
(like 401(k)s, IRAs or qualified annuities) and health savings accounts
definitely should not be transferred into your living trust. Health savings
accounts cannot be funded into a trust, and transferring a qualified retirement
account to a trust counts as a total withdrawal of the account funds, which
carries with it potentially very harmful tax consequences.
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| Legacy Assurance Plan for Estate Planning to Keep Your Money in the Family |
Depending
on what state you live in, there may be other assets that do not require
probate to pass to your loved ones when you die. For example, in some states,
the transfer of your car, truck or boat upon your death does not require
probate. If you live in one of these states, you would not need to fund your
vehicle into your trust in order for it to avoid probate.
In each
of the above discussions, the focus is on whether or not you need to fund an
asset in order to gain the benefit of probate avoidance. However, you might
potentially choose to transfer an asset into trust anyway, based on your
circumstances. Trusts offer their creators many benefits other than just
probate avoidance, and for some people, placing assets into a trust may satisfy
another goal they're seeking to accomplish. Your estate planning attorney can
help you differentiate between assets that can be funded into a trust and those
that should not be funded.
This article is
published by the Legacy Assurance Plan and is intended for general informational
purposes only. Some information may not apply to your situation. It does not,
nor is it intended, to constitute legal advice. You should consult with an
attorney regarding any specific questions about probate, living probate or
other estate planning matters. Legacy Assurance Plan is an estate planning
services-company and is not a lawyer or law firm and is not engaged in the
practice of law. For more information about this and other estate planning
matters visit our website at www.legacyassuranceplan.com.
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