Don’t Put These Things In A Living Trust

Living trusts, which are created when the creator (the testator) is still alive, can be helpful estate planning vehicles. Many people prefer them because they are created when the testator is still alive, thus giving him or her some control over the trust and the comfort of knowing that it exists.

But while it can be tempting to just throw everything that you own into a living trust, there are some things that you need to be careful about putting into these kinds of trusts. Some of these things would be just fine for a trust after you are gone—it’s just not a great idea to put these things into a living trust.

Your Homestead Property

The problem with this is that if the property is your homestead, it may no longer be considered homestead property once transferred, as you are no longer legally the owner of the property. You can lose valuable tax and creditor protection benefits that come from owning a homestead.

Additionally, spouses or minor children who could stand to gain from inheriting the family home may lose their rights if the trust is a legal owner of the home.

Putting the home in a trust can also complicate matters if you ever want to sell the property. As you aren’t the legal owner, there could be difficulty and complications in having the trust be the seller.

Retirement Accounts

Retirement accounts may seem like a good thing to put into a living trust. The problem is that the IRS sees this as a withdrawal of your retirement account, and thus, will punish you with serious taxes for that withdrawal. Some of those tax penalties will be reduced after you reach retirement age, but even then—why pay a tax penalty to put something into a trust now that you could just transfer into a trust when you’re gone?

Life Insurance Proceeds

Putting life insurance into a trust creates a few problems. The first problem is that because a living trust is not exempt from creditors, and because life insurance can be a significant sum of money, it is basically providing a pool of money for your creditors to reach when you are gone.

And, depending on how much the policy is for, the policy could put you at a threshold that subjects your estate to estate taxes.

Bank and Checking Accounts

There is nothing inherently problematic about transferring a checking account to a living trust. But if you’re only leaving that account to a single person anyway, this can be accomplished much easier and cheaper by just establishing a payable on death account, which will automatically transfer the checking account funds to whomever you designate.

Cars that may increase in value, like collectible cars, there is no need to put a car into a living trust. It can make selling the car much more difficult, and has almost no real benefit.

Call the Torrance probate will and estate attorneys at Samuel Ford Law today to avoid making estate planning mistakes.

Sources:

nerdwallet.com/article/investing/estate-planning/what-not-to-put-in-a-living-trust

ameriestate.com/living-trust/what-should-you-not-put-in-a-living-trust/