Estate planning is an important step in ensuring your desired asset distribution after you pass away. While creating a living trust is a common and effective method to manage your assets, be mindful of what you include in it.
In many cases, specific items are better left out of your living trust.
One key item to exclude from your trust is your retirement accounts, such as 401(k)s and IRAs. These accounts come with designated beneficiaries, and trying to place them within a trust can lead to unintended tax consequences. Instead, ensure that your beneficiaries are up-to-date directly on the account.
Life insurance policies
Similar to retirement accounts, life insurance policies have designated beneficiaries. Naming the trust as the beneficiary often complicates distribution. It is preferable to designate specific individuals as beneficiaries to simplify the process and avoid unnecessary delays.
Including vehicles in a trust may lead to complications in their daily use. Typically, vehicles are better dealt with through other methods, such as transfer-on-death registration or joint ownership, to ensure a seamless transition without the need for probate.
Tangible personal property
While it might seem logical to include all personal belongings in a trust, it is more practical to handle tangible items like furniture, jewelry and artwork through a separate document, like a personal property memorandum. This allows for easier updates without the need to amend the entire trust.
Jointly held property
Assets owned jointly with rights of survivorship usually transfer automatically to the surviving joint owner. Including such property in a trust may complicate matters unnecessarily. Verify ownership structures and consider alternatives for efficient transfer.
Foreign real estate
With the State Department estimating that 9 million US citizens live overseas, you are not alone if you anticipate moving abroad in retirement. However, owning real estate located outside your home country may have different legal and tax implications. To avoid complications, it is advisable to handle foreign real estate separately, complying with the laws of the respective jurisdiction.
By strategically managing various assets outside your living trust, you can streamline the distribution process and ensure things run smoothly following your passing.