Do Living Trusts Make Sense?

If you’re putting together an estate plan, you have no doubt heard about the benefits of a living trust. Assets placed in a trust won’t go through probate, a time-consuming and potentially costly process. In addition, a living trust, also known as a revocable trust, allows you to designate a trustee to help manage your estate after you’re gone – an important consideration if your heirs are minor children or adults who are unable to handle a large inheritance.

But although living trusts can streamline the disposition of your estate, there are plenty of opportunities to make costly missteps, particularly when it comes to transferring your assets to a trust.

What not to put in a living trust

Some types of accounts should never go into a trust, even if they account for the bulk of your estate. That category includes assets in your retirement accounts, such as your 401(k) plan, IRAs, and tax-deferred annuities. Health savings accounts and the less-common medical savings accounts, which allow you to take tax-free withdrawals for medical expenses, should be excluded from your trust.

Assets that belong in a trust

Another common misstep is to set up a trust and then fail to fund it. Funding a trust typically involves retitling property and financial accounts. You and your attorney should come up with a detailed inventory of assets that belong in the trust.

  • Real estate, including your home. It may be your largest asset, and it’s an appropriate one to place in your trust. Doing so will decrease the time required to transfer the home to your heirs. And if you own property in another state, like a vacation home, transferring the title to a living trust will help enable you to avoid going through probate in more than one state. You’ll need to create a new deed that transfers ownership of the property to your trust.
  • Financial accounts. Financial accounts that can be transferred to a trust include stocks, bonds, mutual funds, and other investments in non-retirement accounts; certificates of deposit; money market funds; and bank savings accounts that aren’t being actively used to write checks. You can put your safe deposit box in the trust, too.
  • Personal property. You usually don’t need to retitle these types of assets, but you should draw up a list with instructions that will be included in the trust. You can use the trust to designate who should receive those items, which should prevent family disputes. You can also provide this type of direction in a will, but it becomes a matter of public record.

Do you really need a trust?

Funding a living trust requires some work, and there is also the issue of cost. Depending on where you live, expect to pay $1,000 – $2,000 in legal fees, compared with $200 to $500 for a basic will.

A living trust may be worth the cost if it helps to reduce the hassle of going through probate. If you’re served as an executor of an estate, you may already be aware of what’s involved. No one appreciates trying to avoid probate more than someone who has gone through probate.9

Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. The Retirement Income Store® , LLC and Sound Income Strategies, LLC are associated entities.

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