Property in a Living Trust
A living trust is a critical component of the large majority of American estate plans. When used properly in conjunction with a will, a living trust can provide significant time and money savings for your loved ones after you die. But it is not wise to simply transfer all of your property to the living trust. Some property has no business in a living trust. Other property works great in a living trust.
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Function
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Keep in mind the predominant purpose of a living trust, which is to avoid the time and expense of probate. Probate takes place when you die. A probate court will review your will and order your property distributed according to the terms of your will. Because probate necessarily involves the court system and attorneys, probate can be expensive and time-consuming. Fortunately, any property held in your trust does not pass through probate.
Time Frame
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Another important factor in deciding whether to transfer property to your living trust is the amount of time you are likely to own that piece of property. Transferring title to and from the trust is more complicated than transferring title personally. So, if you are planning to sell a piece of property within the next few years, it is probably not worth the hassle to put the property in trust.
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Good Types
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Property you want to place in your trust is anything that would otherwise go through probate. This includes real estate that you don't own as a joint tenant. If you are a co-owner of real estate owned in joint tenancy, the real estate title will pass to the surviving co-owner immediately upon your death, thus avoiding probate.
Other types of property that work well in a living trust include bank and investment accounts that do not have a pay-on-death beneficiary, valuable or sentimental items of personal property like family heirlooms, jewels, diaries and precious metals.
Bad Types
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Other property does not work well in a living trust, primarily because it is either illegal to transfer the property to a trust, or there are no benefits to holding the property in trust. In most states, for example, it is against the law to transfer a car title to a trust. Additionally, some property will avoid probate even if it is not in a trust, such as property owned as joint tenants, life insurance proceeds and bank accounts with a pay-on-death beneficiary. You should also avoid putting into trust any personal property that you use frequently, such as personal checking or savings accounts.
Expert Insight
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Every once in a while, a living trust can provide income tax, estate tax or inheritance tax avoidance benefits. The vast majority of Americans do not need to worry about this, though, because you must own at least $3 million in property before those tax issues even become relevant. But if you happen to own that much property, it would be a good investment to hire professional attorneys, accountants or estate planners to help you create a tax avoidance strategy.
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References
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