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Assets you should not include in your living trust

On Behalf of | Dec 13, 2021 | Trusts |

A living trust, just like a will, is an important estate planning tool that lets you spell out who will get your assets when you pass on. A living trust allows you to “put assets” into it. You can put different types of assets such as bank accounts and stocks in your living trust. And unlike a will, the assets you hold in your living trust do not have to go through probate to be distributed to their designated beneficiaries.

Funding a living trust should be an ongoing process. However, it is important to understand that may not be optimal for many assets. Here are some of the assets that you should not include in your living trust:

Retirement accounts

Including retirement accounts such as annuities, 401Ks and IRAs in a living trust is never a prudent idea. The reason for this? Transfers of these accounts would be deemed complete withdrawal of these funds. This would mean that such funds would be eligible for taxation during transfer. Rather than transferring your retirement accounts into the trust, consider naming the trust as either the primary or secondary beneficiary of your retirement accounts.

Health savings accounts

As the name suggests, these accounts are used for settling any medical bills. Since they are tax-free, they should not be included in a living trust. Again, if you have to tie these accounts to your trust, you are better off naming the trust as either the primary or secondary beneficiary of the account in question.

Movable assets

You can include assets like cars, jets and boats in your living trust. However, the process of changing the title of such assets to a living trust is usually extremely tiresome. You have to fill the paperwork and ensure that you avoid applicable transfer taxes. This can be costly in the long run. Besides, most of these depreciate over time.

A living trust is a crucial estate planning tool. However, it is important that you set it up properly. A properly set up and funded trust can help your loved ones avoid costly probate in the event of your death.

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