Setting up a revocable trust is relatively easy, allows for flexibility and helps with a number of estate planning goals, including by-passing the public process of probate. Nonetheless, there are several categories of assets which it is best not to place in a revocable trust. Experts share advice to help fine tune estate plans involving trusts.
Best To Leave Out of Trusts
Flexibility makes revocable trusts a solid anchor for estate plans: “The revocable trust maker can change the revocable trust at any time, or transfer the property out of the revocable trust at any time without getting permission from anyone.” Simply put, a revocable trust:“Allows you to keep control of your money and property and designate who receives it once you die. ‘Revocable’ means you can change the terms at any time, so long of course as you’re ‘living.’ As the assets aren’t considered a part of your estate, they sidestep the probate process.It also lets you continue to use assets transferred into the trust: for example, a house or money from investments.”
Despite their many advantages, however, there are some assets which are best to avoid placing in revocable trusts. For example, experts at Moneywise recommend not putting these three types of assets in revocable trusts:
- Vehicles. Whether it’s a ’63 Corvette, Harley chopper or prop plane, all that’s required to pass it on is a simple written instruction to transfer the title to a beneficiary. In a trust, you’re exposed to lawsuits over accidents that involved the vehicle.
- Annuities and retirement accounts. A trust can turn non-taxed accounts into taxable ones. But you can make the trust itself the beneficiary so that these accounts pass directly to your trustees without some IRS agent crashing the wake.
- Life insurance. Simply name your beneficiaries within the policy. Or, create an irrevocable life insurance trust (ILIT) to avoid estate taxes.
Experts also urge caution regarding estate planning decisions for assets held in other countries: guidance from attorneys licensed to practice in the country where international assets are located is strongly recommended. Be thoughtful too about placing checking and savings accounts in a trust: “If you use these to pay monthly bills, you may run into financial complications unless you’re the trustee and granted full control of trust assets.”
When establishing any type of trust as part of an estate plan, clarity on goals and circumstances is essential, making it wise to work with an attorney who can customize the plan. Either revocable or irrevocable trusts can be helpful for families seeking privacy and speed in transferring assets to designated beneficiaries, since assets gifted through trusts do not go through the public probate process, as assets left in a will do. Some estate planners recommend setting up both revocable and irrevocable trusts to get the unique advantages of both types of trusts. For example, since irrevocable trusts require the relinquishment of assets, the assets placed in them are shielded from creditors. Keep in mind that irrevocable trusts can be a particularly effective tool for families who may require public benefits to assist special needs individuals or elders seeking long term care.
Trustees and Trustee Bonds Explained
When trusts are established, trustees are named to administer the assets in them, based on the arrangements specified in the trust agreement. Trustees have fiduciary obligations and are held to exceptionally high legal standards,“the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are sometimes required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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