A trust is simply a contract or an agreement between a grantor (someone who establishes a trust) and a trustee (someone who then holds authority over and manages the assets of the person who establishes the trust).
A trust is created for easy distribution of a person’s assets to one or more chosen beneficiaries (individuals or organizations whom the trustor nominates to benefit from the assets after his death). A trust can also take effect during the life of a trustor, which is called a living or revocable trust.
A revocable trust is a type of trust that provides the person with the flexibility to change their terms at any time during their life, lets you retain control over the assets transferred, and to withdraw the terms at any time, but doesn’t protect the assets from lawsuits. Assets over which a person wants to have control till their death are usually belong to this type of trust.
In contrast, in an irrevocable trust, the terms and conditions are binding at the time of its creation, and any change requires the agreement of all the beneficiaries or the court intervention. The assets in an irrevocable trust are tax free.
Generally, those assets, that a grantor wants to part away with, are put in this type of trust.
Trusts are a part of estate planning (anything an individual has in possession after his/her death is termed as an estate) to allow for an easy asset distribution. Assets that are kept in a trust comprise the trust fund.
Here is a quick review of the assets that you should put into a trust and assets that you cannot:
Real Estate:
One of the foremost advantages of putting any of your real estate assets into a trust is that it avoids your beneficiaries the hassle they have to deal with in probate (legal challenges of determining a will’s validity).
Another advantage is that it lets the trustee manage your real estate asset legally if you become incapacitated and, thus, unable to continue your duties.
Although putting real estate assets in a trust requires additional paperwork and exact property records, the benefits of avoiding stress and the financial overload of the probate process still surpasses the disadvantages.
Bank Accounts:
If you have a significant amount of capital in your bank accounts that is not under your use, it is wiser to transfer them into a trust, so that you can ensure the distribution of your financial assets to your beneficiaries later on.
Transferring your bank accounts in the name of your trustee should always be verified by the bank, so that they help you understand the related terms and conditions.Tangible assets:
Distribution of one’s tangible assets e.g., valuable jewelry, household items such as antiques, artworks, and automobile collections, requires a proper distribution plan.
Designation of your tangible personal assets during your lifetime into your trust saves time as well as the financial cost of probation, as according to some local laws vehicles entitled in an individual’s name cannot be transferred without probation.
Life Insurance:
The trustee can cash out your life insurance policy, in the case of a revocable trust, if you become incapacitated to continue with your required duties as per the terms of the trust. A change of beneficiary is required in cases where you have to transfer the policy to someone else.
Transferrable Assets
Retirement Accounts:
An individual’s retirement account is an account created for long-term savings with benefits, such as tax exemptions. Transferring ownership of a retirement account to your living trust would be recognized as an instant taxable transaction, just like cashing out an account.
During your lifetime, the retirement account should be titled in your name. It is advisable to complete the beneficiary designation form with the business or bank administering your retirement account to keep the account from entering probate upon your death.
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Annuities:
Annuities are financial contracts between an insurance company and an investor that delivers a guaranteed source of income over a set period.
Annuities are utilized basically as a stream of income for retirees. Moving annuities into a trust can be risky, as some annuities are qualified as retirement accounts, and doing so might immediately subject them to the tax bracket.
It is advisable to keep your annuities out of trusts, or, if not, then mention all the beneficiaries that will inherit the annuity at the time of distribution.
Medical and Health Saving Accounts:
Medical and health saving accounts are saving accounts that clear medical bills and health-related debts with or without insurance.
Medical and health saving accounts are tax-exempted accounts. You cannot transfer these accounts into a revocable trust because they already allow you to use the money tax-free for allowable medical expenses.
If you still want to put them in your revocable trust, you can do so by listing the trustee as a primary or secondary beneficiary of the account. It is preferable not to do so because these can be subjected to taxes once transferred into your trust.
Active Financial Accounts:
Financial accounts from which you withdraw daily transactions and use them to pay your immediate monthly bills are not to be transferred to a trust unless you are the trustee and have full control of the trust’s assets.
Many people simply prefer to keep these accounts outside of the trust.
Conclusion:
Transferring your estate funds and assets into a revocable trust provides many benefits. From being able to have complete control to providing an uncomplicated way for your heirs and beneficiaries to benefit from them after your demise, all can be made possible through establishing a revocable trust. Even though transferring your assets to a trust requires some additional documentation, it still is far more preferable than dealing with the probate.
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