4 Things You Should Never Put in a Living Trust

4 Things You Should Never Put in a Living Trust

Paige Cerulli   Sun, Aug 18, 2024   GOBankingRates

I’m an Estate Planner: 4 Things You Should Never Put in a Living Trust

A living trust can be a helpful estate planning tool, and it can help manage assets including your personal home, bank accounts, and investment accounts. But there are certain assets that you should never put in a living trust, or you could face tax implications, difficulty accessing funds you need, and other complications.

If you’re exploring creating a living trust, then it’s important to understand how it works and which assets it’s not the right option for.

How a Living Trust Works

Probate, which is the process of transferring your assets after you’ve died, can be time-consuming and expensive. Kelsey Simasko — attorney at Simasko Law in Mount Clements, Michigan — explained that you can use a living trust to help avoid your assets going through probate court. Living trusts may also help prevent family fighting.

“A living trust is essentially just a bucket that says, ‘I (the principal) am creating a bucket and I am in charge of everything in this bucket, and when I die, child A (the trustee) will be in charge of the bucket, and it’s their job to give $10,000 to the church and then split everything equally between my other three children (the beneficiaries),'” said Simasko.

In the above example, when the principal dies, child A will be responsible for selling the house and wrapping up the principal’s affairs, rather than those assets going through the probate process. Simasko explained that a trust offers the benefit of putting protections in place for the other beneficiaries if the trustee sells the house for less than the fair market value, or misuse the money. At the same time, the trustee doesn’t face the challenge of having to get everyone’s approval to do everything.

Cynthia Brittain — partner at Karlin & Peebles, LLP in Los Angeles — explained that a living trust also has important tax and protection benefits. “A trust document can be drafted to incorporate U.S. income and estate tax provisions that are highly beneficial,” she said. “The trust can be drafted such that the trust will shield assets from U.S. estate tax going forward.”

She noted that a trust also provides asset protection at some level on an ongoing basis, and gives the family more privacy than the probate process would.

Things To Never Put in a Living Trust

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