When setting up a trust, you will decide what assets you want to place in the trust. However, you might wonder whether the law or other considerations prohibit you from placing specific types of assets in trust.
Understanding Trusts
In a trust, a party called a trustee holds title to and manages property for the benefit of one or more people or entities known as beneficiaries. Trusts serve several critical functions, including:
- Protecting assets from creditors or ensuring that poor financial decision-making doesn’t dissipate inherited wealth
- Passing on assets and family wealth through succeeding generations while avoiding the time and expense of probate and estate administration
- Offering privacy in an estate plan, as trust documents can remain confidential while wills must be filed in open probate court proceedings
- Facilitating elderly or disabled family members’ eligibility for government benefits
The person who creates a trust, known as a grantor, will draft and execute the trust agreement. The agreement lays out the terms of the trust, including nominating a trustee or trustees, designating beneficiaries, and setting guidelines or procedures by which the trustee must manage the trust. The grantor will fund the trust by transferring money to a bank account set up for the trust or retitling assets like stocks or real estate in the name of the trust or trustee. The trustee has a fiduciary duty to manage the trust’s assets according to the trust agreement and for the best interests of the trust’s beneficiaries.
A grantor can set one of two kinds of trusts. A revocable trust gives the grantor the right to change the trust’s terms or dissolve the trust. In an irrevocable trust, the grantor permanently gives up legal title to assets placed in the trust and cannot alter the terms of the trust agreement once established.
Examples of Assets Typically Placed in a Trust
People who use trusts as part of their estate plans may place various types of assets into a trust, such as:
- Cash, which usually gets deposited into a separate bank account created specifically for the trust
- Stocks, bonds, or other securities
- Real estate
- Valuable personal property, such as antiques or artwork
- Business interests, such as ownership interests in a family business or a closely held corporation
What Assets Might Pose Challenges for a Trust?
Although a trust can take title to most kinds of assets, grantors typically should avoid placing certain assets in trust due to the legal challenges that may arise. Examples of assets you might refrain from putting in your trust include:
- Retirement accounts, since retitling qualified retirement accounts may trigger tax liabilities or penalties
- Vehicles, as transferring titles for certain kinds of vehicles may require you to pay title transfer fees and taxes, although the benefit of protecting a valuable collectible vehicle may outweigh any fees or taxes associated with placing the vehicle in a trust
- Health/medical saving accounts
- Personal bank accounts
- Uniform Gift to Minors Accounts (UGMAs) or Uniform Transfers to Minors Accounts (UTMAs), as putting these accounts in trust may drag your trust into probate litigation if you die as trustee before your child reaches adulthood
- Life insurance policies
- Jointly-owned properties, especially properties owned as a tenancy by the entirety
Alternatives for Assets You Cannot Place in a Trust
For those types of assets you probably shouldn’t put in a trust, you may have other options for protecting their value and passing them on to the next generation with minimal expense. For example, you can use a beneficiary designation to ensure the proceeds of a life insurance policy or annuity get paid to your heirs or your trust. You can also use pay/transfer-on-death designations to transfer bank/financial accounts to heirs.
Contact an Estate Planning Lawyer Today to Discuss Your Options
If you’ve considered setting up a trust, an experienced estate planning attorney can help you evaluate your rights and options for managing your and your family’s assets. Contact Jones, Gregg, Creehan & Gerace today for a confidential consultation to learn more about how a trust will allow you to protect your hard-earned wealth to pass on to loved ones.