What Assets to Exclude from a Trust

What Assets to Exclude from a Trust: A Comprehensive Guide

Trusts are an efficient estate planning tool that allows you to transfer assets to your beneficiaries without going through the probate process. However, not all assets should be included in a trust. In this article, we'll discuss what assets to exclude from a trust to avoid any legal and tax complications.

1. Retirement Accounts

Retirement accounts, such as 401(k)s and IRAs, should not be included in a trust. These accounts already have beneficiary designations, which means they will pass directly to the named beneficiaries outside of probate. Moreover, if you transfer these accounts to a trust, you may trigger a taxable event that could result in penalties and higher taxes.

2. Life Insurance Policies

Similar toretirement accounts,life insurance policieshave beneficiary designations that determine who will receive the death benefit. Naming a trust as the beneficiary of a life insurance policy can lead to adverse tax consequences and complicate the distribution of the death benefit.

3. Tangible Personal Property

Tangible personal property, such as jewelry, artwork, and furniture, should not be included in a trust unless its value exceeds a certain amount. These assets can be distributed through a personal property memorandum, which is a document that lists the items and their intended recipients. This approach is more flexible and less expensive than creating a trust for each item.

4. Cars and Other Vehicles

Cars, boats, and other vehicles should not be included in a trust for the same reasons astangible personal property. Instead, you can transfer ownership of these assets through a transfer-on-death (TOD) designation, which is available in some states.

5. Business Interests

If you own a business, you should consult with an attorney to determine the best way to transfer your business interests to your beneficiaries. Depending on the type of business and your goals, a trust, a buy-sell agreement, or a combination of both may be appropriate.

6. Jointly Owned Property

If you own property jointly with someone else, such as a spouse or a business partner, you cannot transfer your share to a trust without the other owner's consent. It's important to review the ownership structure of your assets and consider how they will be distributed after your death.

Conclusion

In summary, not all assets should be included in a trust. Retirement accounts, life insurance policies, tangible personal property, cars and other vehicles, business interests, and jointly owned property are some of the assets that should be excluded from a trust. By understanding what assets to exclude from a trust, you can ensure that your estate plan is effective, efficient, and compliant with the law.