A living trust is a trust that a person creates during their lifetime which designates a trustee to manage and hold the assets. The trustee will distribute the assets to the appropriate beneficiaries when the creator of the trust dies, according to their instructions. The main reason for creating a living trust is to avoid property from passing through probate. This is often a key part of an estate plan so the estate holder can avoid the extra costs and time associated with probate.
The first thing you need to do is determine which assets to place in a living trust and which assets you should let pass through probate. There are several advantages and disadvantages to consider when adding a living trust to your estate plan, all of which will depend on what property comprises your estate. Also keep in mind that living trusts are revocable, which means the person who created it can change the terms of the trust during their lifetime, if they desire.
How Can You Determine Which Assets Are Best?
It can be hard to decide which assets would be best suited for a living trust, especially when you own a lot of property. The best place to start is by classifying your assets by value so you can make an informed decision about this important component of your estate plan.
There are several benefits of placing your higher value property in a living trust. In most situations, more expensive items take more time and money during the probate process, so you should consider including the majority of your valuable assets in your living trust to avoid this obstacle.
Living trusts also help maintain privacy if someone does not want ownership of an item to become known to the public. The living trust will not become public record upon a person’s death, unlike other types of trusts or estate documents.
Also keep in mind that assets which are subject to frequent sales or transfers would not be good candidates for a living trust. This is because you would encounter these assets bouncing back and forth from the living trust when sales or transfers occur, which can get messy.
After considering these things, you will be ready to decide which items would be beneficial to keep in a living trust. Here are some examples of assets that people frequently include in their living trusts:
- Valuable furniture;
- Expensive art;
- Antiques and family heirlooms;
- Valuable collections, like coin collections;
- Expensive jewelry;
- Interests in small businesses, like being part of a partnership;
- Copyright interests;
- Real estate; and
- Securities, like bonds.
There are just a few examples and you can decide what you want to include in a living trust based on what valuables that you own.
What Other Assets Might Not Be Ideal to Include in a Living Trust?
In addition to property subject to frequent sales or transfers discussed above, there are some property categories that are simply not able to be transferred through a living trust. This includes cash, some retirement benefits, and the majority of life insurance benefits. Consider alternate transfer methods for these assets in your estate plan, like through a payable-on-death or transfer-on-death account.
Other assets that you can legally place in a living trust, but may present some obstacles include the following:
- Vehicles: The reason people do not usually include vehicles in a living trust is because it is often impractical to have the insurance and registration under the trustee’s name.
- Interests in Larger Businesses: Larger businesses like corporations are more complex and could present more questions about how much ownership you actually have in the company, which can create a roadblock to your living trust. Interests in smaller businesses are easier to identify and manage.
- Real Estate: As noted above, real estate can be a good asset to place in a living trust because it is often valuable. However, this is not ideal or necessary in a situation where you co-own the property with someone else, since they may likely already gain automatic survivorship rights upon your death.
These items would be better suited to pass through probate. However, remember that since your living trust will be revocable you can always amend it as conditions change in the future. Any changes will need to be legally executed in order to be deemed enforceable.
Do I Need to Hire a Lawyer for Assistance With a Living Trust?
Although creating a living trust is a simpler part of an estate plan, it takes a lot of planning and foresight. A local estate lawyer can help you put things into perspective and decide which assets would be best suited to go into a living trust and which should pass through probate. A lawyer can also draft your living trust, amend your living trust, and represent you in court if any issues arise.