It is important to start by considering your objectives. That is the first step in determining what assets should be in your trust. Oftentimes, it is easier to start by thinking about what you should not put into your revocable living trust.
If a revocable living trust has the distribution setup correctly and how you desire, a revocable living trust may be appropriate for holding the bulk of your assets -- with some important exceptions. Before we get into those expectations, it is important to understand how trusts work so that we understand why those exceptions apply.
How Trusts Work
Think of trusts as a different entity. The same way that an LLC or a corporation is a different entity from its shareholders. A trust is a different legal entity from the trust creator. Trusts are capable of acting independently, owning assets independently, filing lawsuits, and being sued themselves.
What Assets Should I Transfer?
It is because of these functions that we need to be cautious when it comes to transferring qualified assets, such as IRAs and 401(k)s, to a revocable trust. The transfer of an IRA or 401k to a trust is similar to transferring it to a different owner, such as a different person, a different corporation, a different entity, and in doing so, the IRS considers this a taxable distribution.
Similar to qualified assets, when a Health-Savings Account and Medical-Savings Account are transferred to a trust, they may be subject to taxes. Additionally, transferring a vehicle to a trust may result in the need to pay title-transfer fees and additional taxes for issuing the new title.
This list is not exhaustive.
Other than the above-mentioned items, a revocable living trust may be a good option for the majority of your assets. This means your bank account, your house, your post-tax investment account, etc, should likely be transferred to a trust.
You should pay special attention to retitling your assets to a trust to avoid unwanted taxes or other consequences. Talk to a professional today.
Contact one of our attorneys at our Wisconsin (414-253-8500), Minnesota (612-204-2300), or California (310-438-4020) locations to make sure your assets are properly protected or for more information on a Trust, Will, Life Estate, Medicaid Planning, or Estate Planning.