Once you create a trust to control your assets in the event of your death and to provide for yourself if you become incapacitated, your next step is to move those assets into the trust. But which assets should be placed in the trust and which might be more appropriate in your own personal jurisdiction? Here are some do's and don'ts for asset transfer to trusts.
Do Place Large Hard Assets in Trust
Start by identifying your most valuable - in financial terms or personal terms - hard assets and transferring these to the trust. Assets like real estate, vehicles, antiques, and valuable art or collectibles may be at a higher risk of ending up delayed through probate court if left outside the trust. This is often because there are few equally simple and effective methods for avoiding probate with such assets.
Focusing your time and energy on the assets that would be most at risk allows you to use the trust to its maximum without spending all your time managing it.
Don't Forget the Value of Beneficiaries
Not every asset must go into the trust. You have options for many financial assets, including insurance policies and bank or brokerage accounts. These accounts usually allow beneficiary designations. The value of the account or policy may go directly to these beneficiaries without passing through probate.
You may choose to leave these assets as they are and rely on beneficiary provisions. However, you may also opt to place them in trust, but this may not need to be a priority. Determine if the account would need to go through probate before deciding whether or not to place it in trust.
Do Consider Transfer and Tax Consequences
Placing assets in trust usually doesn't trigger tax or ownership issues, but this is not guaranteed. For instance, a Certificate of Deposit transferred from an individual owner to a trust may be treated as an early withdrawal and generate a penalty. Similarly, some retirement accounts - including 401(k) plans or qualified annuities - may not allow you to transfer them until after your death. Do research first.
Don't Try to Capture Everything
Sometimes when a trust is created, the grantor tries to place everything possible into that trust for safekeeping. However, this isn't usually feasible because assets come and go from a person's life all the time. Many personal assets are also simply too small to worry about protecting with a trust. But you can use a tool known as a pour-over will to capture these.
A pour-over will is a will that stipulates that the remaining assets of a person be transferred into their trust when they pass away. Therefore, these assets can remain outside the trust for now and still be protected by it later.
Do Transfer Business Interests
Do you own a partial or full stake in a family-owned business? If so, your interest is an asset that deserves special consideration for the trust. Business interests that are left in a will may be especially challenging for your executor because they will need to operate your business interest while it's in probate. A trust avoids this hassle and allows quick and efficient transfer of that interest.
Methods for transferring business interests to a trust vary depending on the type of business, so this may be somewhat complex. A sole proprietor, for example, may be able to simply transfer the assets while a member of an LLC may need other shareholders' permission for the transfer.
Do Work With an Attorney
As with many aspects of setting up a trust, funding it can be difficult. Whether you have unusual assets or you want to keep things as simple as possible, your best ally during this process is an experienced estate planning attorney in your state.
Donald B. Linsky & Associate PA can help Florida residents with all their planning needs. Call today to make an appointment.
