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What Assets Belong in a Trust?
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Get StartedWhat Assets Belong in a Trust?
Creating a trust is just the first step. The real magic happens when you fund it properly. Think of your trust like an empty container - it only works if you put the right things inside it.
Many people create trusts but never transfer their assets into them. This defeats the entire purpose. Your trust can't protect or manage assets it doesn't actually own. Understanding what a living trust actually accomplishes helps clarify why proper funding matters so much.
Assets That Should Go in Your Trust
Most of your valuable assets should be transferred into your trust. Here are the main ones to consider:
Real Estate
Your home is probably your biggest asset. It should definitely go in your trust. This includes your primary residence, vacation homes, rental properties, and land.
When you put real estate in a trust, you avoid probate for these properties. Your family won't have to wait months or years to inherit the house. For those who own unique property types, understanding the differences between land trusts and living trusts can help determine the best approach.
Bank Accounts
Checking and savings accounts should be transferred to your trust. This gives your successor trustee immediate access to funds when needed.
Your trustee can pay bills and expenses without waiting for court approval. This is especially helpful if you become incapacitated. Emergency funds, operating accounts, and long-term savings all benefit from trust ownership.
Investment Accounts
Brokerage accounts, stocks, bonds, and mutual funds belong in your trust. These assets can be volatile and need active management.
Having them in your trust means your successor trustee can make investment decisions if you're unable to do so. Market timing doesn't wait for probate court. Complex investment portfolios especially benefit from the seamless management transition that trusts provide.
Business Interests
If you own a business, those interests should typically go in your trust. This includes LLC memberships, partnership interests, and corporate stock.
Business interests in a trust can continue operating smoothly if something happens to you. Your successor trustee can step in and manage your ownership stake. Partnerships often have survivorship provisions that work well with trust ownership.
Valuable Personal Property
Expensive items like jewelry, art, collectibles, and vehicles should be in your trust. Anything worth significant money benefits from trust ownership.
This doesn't mean every household item needs to be listed. Focus on the valuable stuff that matters. Items with sentimental value often appreciate over time and deserve protection.
Assets That Don't Belong in Your Trust
Some assets should stay out of your trust. Here's what to avoid:
Retirement Accounts
401(k)s, IRAs, and other retirement accounts shouldn't be owned by your trust. These accounts have special tax rules that trusts can mess up.
Instead, name your trust as the beneficiary of these accounts. This gives you the benefits without the tax complications. The IRS has strict rules about retirement account ownership that can trigger massive tax bills if violated.
Life Insurance Policies
Life insurance policies work best when you name your trust as the beneficiary, not the owner. This keeps things simple and preserves the tax benefits.
There are exceptions for very large estates, but most people should keep life insurance outside their trust. For estate tax purposes, sometimes an irrevocable grantor trust might own the policy instead.
Health Savings Accounts
HSAs have special tax advantages that only work for individual owners. Putting them in a trust can trigger taxes and penalties.
Keep these accounts in your own name and name your trust as beneficiary instead. The triple tax advantage disappears if you mess with HSA ownership rules.
Everyday Personal Items
You don't need to transfer every piece of clothing or kitchen appliance to your trust. Focus on items with real value.
Most household items can be handled through a simple personal property list or your will. The administrative burden isn't worth it for items under a few thousand dollars in value.
Special Considerations
Some assets require extra thought before putting them in your trust:
Primary Residence and Homestead Exemptions
In some states, putting your home in a trust might affect property tax exemptions. Check with a local attorney before transferring your primary residence.
Most states protect these exemptions, but it's worth confirming in your area. Homestead exemptions can save thousands in annual property taxes.
Vehicles
Cars and boats can go in your trust, but it's often not necessary unless they're very valuable. The paperwork might not be worth it for an average car.
Consider the value and hassle factor when deciding about vehicles. Classic cars, boats, and RVs over $50,000 typically justify the transfer effort.
Out-of-State Property
If you own property in multiple states, putting it in your trust is especially important. This avoids having to go through probate in each state.
Trust ownership simplifies everything when you have property scattered around the country. Ancillary probate proceedings can cost thousands and take years to resolve.
Asset Protection Considerations
While trusts provide some benefits, they're not bulletproof protection against all creditors. Many people wonder about whether living trusts protect assets from creditors - the answer is more complex than most realize.
Revocable living trusts don't provide asset protection during your lifetime. You maintain complete control, which means creditors can still reach trust assets. However, they do provide privacy and probate avoidance benefits that can be valuable.
How to Transfer Assets to Your Trust
Moving assets into your trust requires proper legal transfers. This isn't just about making a list.
Real estate needs new deeds. Bank accounts need new titles. Investment accounts need to be retitled. Each type of asset has its own transfer process that must be followed precisely.
Work with your attorney to make sure transfers are done correctly. Improper transfers can cause problems later. Some institutions have specific forms and procedures for trust transfers.
Common Mistakes to Avoid
Many people make these trust funding errors that can undermine their entire estate plan:
Creating a trust but never funding it. This is like buying a safe but leaving your valuables on the kitchen counter - completely defeats the purpose.
Putting retirement accounts in the trust instead of naming it as beneficiary. This can cause immediate tax consequences that wipe out years of tax-deferred growth.
Forgetting to update beneficiary designations on accounts that can't be owned by the trust. Life insurance and retirement accounts need beneficiary updates even when the trust exists.
Not maintaining the trust by adding new assets as they're acquired. Your trust can't protect assets you forget to put in it.
Understanding What Else You Need
A properly funded trust is crucial, but it's just one part of comprehensive estate planning. Understanding what you need besides a living trust ensures you don't miss other important planning elements.
Healthcare directives, powers of attorney, and updated beneficiary designations all work together with your trust. These documents should complement each other as part of a cohesive plan.
Keeping Your Trust Current
Trust funding isn't a one-time event. As you acquire new assets, they should be titled in your trust's name.
Review your trust funding annually. Make sure everything valuable is properly transferred and that you haven't acquired new assets that need attention.
When you buy a new house, open a new investment account, or acquire other valuable assets, remember to put them in your trust. This should become automatic as part of your financial routine.
Getting Professional Help
Trust funding can be complex, especially when dealing with multiple asset types and jurisdictions. Different assets have different rules and requirements that can trip up even careful planners.
Work with an experienced estate planning attorney to ensure your trust is properly funded. They can help you avoid costly mistakes and make sure your trust actually works when needed.
The goal is to have your trust own everything it should own, while keeping out assets that work better outside the trust. Proper funding makes your trust effective and gives you the benefits you're seeking. Without proper funding, even the most expertly drafted trust document becomes worthless paper.
