A living trust is a legal tool that allows you to hold property for someone else. It involves three parties: settlor (the person giving the property), trustee (the person holding the property), and the beneficiary (the person or people who benefit from the property). These three parties can be the same person or they can be different people. People can place real estate, fine art, money, and other things of value in a living trust.
This can be used to avoid probate, eliminate the need for conservatorship if the settlor becomes incompetent, helps with tax planning and protection against creditors, and allows the settlor to have control over how their property is distributed after their death. When deciding what to put in, you should also consider what should you not put in a living trust? If you are considering a living trust, contact the qualified estate planning attorneys at Kushner Legal at 310-279-5166 to discuss your circumstances and learn more about your legal options.
Life Insurance
When a life insurance policyholder dies, the proceeds pass directly to the beneficiary named on the policy. This means there is no need to put the life insurance policy in the trust to avoid probate. However, it can be a good idea to make the living trust the beneficiary of the life insurance policy.
Additionally, you may want to consider having a general power of attorney that allows someone to deal with the life insurance policy if you are incapacitated. This will ensure that this person can pay the premiums or make changes to the policy amounts or beneficiaries as needed to ensure your wishes are carried out.
Retirement Accounts
There are multiple reasons not to add your retirement accounts to a living trust. First, you would need to withdraw all of the funds in the retirement account in order to put them in the living trust. This withdrawal means that the entire value of the retirement account would be subject to income tax for the year that you transfer the money.
You may want to name the living trust as beneficiary on the retirement account. If you do this, however, you do need to speak with an attorney to ensure that your living trust is drafted with the appropriate provisions in place to hold retirement accounts. If it is not drafted properly, there could be unintended and expensive tax consequences. The qualified attorneys at Kushner Legal can assist you with drafting a living trust that meets your needs.
Health Savings Accounts
Health Savings Accounts (HSA) are accounts in which you deposit money, either pre-tax from your paycheck through an employer or directly and write them off as tax deductions later. You then use these contributions to pay for qualified medical expenses such as prescriptions, medical supplies and co-payments. This makes them technically a trust arrangement of their own. This means they cannot be transferred to a living trust.
What you can do with an HSA is name the living trust as the beneficiary of the account. This will allow the trust beneficiaries to use any remaining funds after your death. When wondering what should you not put in a living trust, put HSAs at the top of your list.
Uniform Transfers to Minors Accounts (UTMA)
Uniform Transfers to Minors Accounts (UTMA) are accounts created to give benefits to a minor child with a custodian until the child reaches the age stated by the person who set up the account, usually between 18-21. It can be until age 25 per the California Legislature.
UTMAs cannot be added to a living trust because they legally belong to a child when the account is officially established. This means there is no need to put it in the trust because it has already been given to the child.
Motor Vehicles
The simplest reason not to add motor vehicles to your living trust is that it is a very tedious process that would need to be repeated each time you changed vehicles. Another reason not to add motor vehicles is that the California Department of Motor Vehicles has a simpler process that allows heirs to transfer the vehicle into their name after your death without going through probate.
It is often better not to put motor vehicles in a living trust. However, if you have reasons for wanting to do so, an alternative is to sign a document transferring your interest in all vehicles currently owned or registered as well as acquired in the future to the living trust. A qualified attorney can help you determine if this is a good choice for you.
Do You Need a Living Trust?
Living trusts offer many benefits when the right things are included. What things should you not put in a living trust? Things that are frequently changed, things that are already protected by tax savings, and things that have already been given to others and are no longer yours. If you need to set up a living trust and have questions about what to include, contact Kushner Legal at 310-279-5166 to discuss your circumstances and learn more about your living trust options.