What Not to Put into a Living Trust
When it comes to estate planning, a living trust is a popular tool for many individuals. It allows you to manage and control your assets during your lifetime and ensures a smooth transfer of assets to your beneficiaries upon your death. However, not all assets are suitable for inclusion in a living trust. Understanding what not to put into a living trust is crucial to ensure that your estate planning goals are effectively achieved. In this article, we will discuss some of the key assets that should be avoided when creating a living trust.
1. Retirement Accounts
Retirement accounts, such as IRAs and 401(k)s, are not typically included in a living trust. This is because these accounts already have designated beneficiaries, and transferring them to a living trust may result in unnecessary tax consequences. It is best to keep these accounts separate and manage them according to their specific rules and regulations.
2. Payroll Checks
Payroll checks should not be placed into a living trust. This is because a living trust is an entity that cannot receive income directly. Instead, you should deposit your payroll checks into a personal bank account and then transfer the funds to the living trust as needed.
3. Jointly Held Property
Jointly held property, such as real estate or bank accounts, should not be transferred into a living trust. This is because transferring joint property may result in the loss of the joint tenant’s rights and interests. It is best to keep these assets outside of the living trust and handle them separately.
4. Life Insurance Policies
While it is possible to name a living trust as the beneficiary of a life insurance policy, it is not advisable to transfer the policy itself into the trust. This is because the insurance company may require a new application and underwriting process, which can be time-consuming and costly. Instead, simply update the beneficiary designation on the policy to name the living trust as the primary or contingent beneficiary.
5. Assets with a Specific Beneficiary Designation
Any asset that already has a designated beneficiary, such as a bank account or brokerage account, should not be transferred into a living trust. This is because the designated beneficiary will still receive the asset upon your death, regardless of the living trust’s provisions. It is important to review and update all beneficiary designations to align with your estate planning goals.
In conclusion, while a living trust can be a valuable estate planning tool, it is essential to understand what assets should not be included. By avoiding these common mistakes, you can ensure that your living trust effectively manages your assets and achieves your estate planning objectives.
