Assets That Can And Cannot Go Into Revocable Trusts (2024)

• Estate Planning, Revocable Trust, Wills and Trusts

A revocable living trust is created to protect your assets, enjoy their benefits during your lifetime, and pass those assets to your heirs without probate. For a revocable living trust to take effect, it must first be funded by transferring those assets. Care should be taken when transferring assets into the trust so as not to cause unnecessary complications. Not all purchases need to be transferred into a trust, especially when such assets already have a “transfer-on-death” policy and, as such, would avoid probate.

In this article, we will be discussing what assets to put and what not to put in a revocable living trust.

Real estate

It would save you a lot of costs transferring your real estate property into a trust because, during probate, huge estate taxes may have been imposed upon the property. In addition, transferring into a living trust becomes even more beneficial when you own property in other states or counties. The trust would prevent having to go through separate probate proceedings in each state. However, if there is a mortgage against the property, you would have to refinance it into the trust’s name, which may prove to be quite tricky with some lenders.

Financial accounts

It may not always be advisable to transfer into your living trust those accounts from which you pay your monthly bills. Still, you could do so without creating any complications so long you are the trustee of the faith, thereby granting you complete control of the trust assets and the right to use the funds to pay bills. On the other hand, savings and investment accounts, bonds, stocks, safe deposit boxes, money markets, mutual funds, and certificates of deposits should all be transferred into the living trust since you do not frequently withdraw from these accounts.

Retirement accounts

Retirement accounts should not be transferred into your living trust, including IRA’s, 401(k)s, 403(b)s, and other qualified annuities. This is because any transfer of such accounts would be seen as a complete withdrawal of the funds, and as such, income taxes would be imposed on the transfer. Instead of transferring retirement accounts into the trust, name the trust as the primary or secondary beneficiary of the retirement account.

Medical savings accounts

Medical savings accounts and health savings accounts are used for paying medical expenses. These accounts are tax-free and cannot be named under a living trust. If you must tie such accounts to the trust, name the trust as the primary or secondary beneficiary of the account.

Life insurance

Naming your living trust as a beneficiary of your life insurance policy should be done with care. First, note that when you own a revocable trust and name yourself as the trustee, all assets in the trust are still considered your property (as opposed to irrevocable trusts). This then follows that the value of your life insurance proceeds would be counted as part of your estate’s worth when you transfer your life insurance into your revocable trust. Since 2011, the federal government has only imposed taxes on estates valuing over $11.18 million (for an individual), with the tax reaching about 17% of the estate’s worth. Take, for instance, your estate’s value is pushed beyond $11.18 million due to the proceeds from your insurance policy. You would be doing yourself more harm than good since you would be heaping estate taxes on your estate when you usually would have avoided it. Kindly speak with a lawyer or tax professional before transferring your life insurance policy to the trust.

Questionable assets

A vehicle often falls under this class. Cars, trucks, boats, airplanes, etc., could all be transferred into a revocable living trust, but some states often impose estate taxes when such property is retitled in the name of a trust, as they see this transfer as a sale of the property. Certain states do not even allow vehicle owners to name a beneficiary after death. Typically, vehicles don’t get probated before passing on to a beneficiary.

There may be more harm than good in transferring a vehicle into a trust. It’s a fact that cars depreciate over time, and the car may even have a loan against it. In addition, if your vehicle develops a fault or is involved in a bit collision, the other party may sue if your trust owns this car.

However, some cars retain their cash value to a large extent for an extended period, and it would be beneficial to transfer them into your trust. To be safer, speak with a highly experienced professional or lawyer before transferring such questionable assets into your revocable living trust.

• Estate Plan, Estate Planning, Estate Planning Attorney, Estate Planning Lawyer