To take advantage of the benefits of a living trust, you must transfer property
into the trust. The person who transfers property into a trust is called a "grantor."
In general, your most valuable property should be placed in the trust. This may
include
- your house
- other real estate
- business interests
- stocks, bonds and mutual funds
- money market accounts
- brokerage accounts
- royalty contracts, patents and copyrights
- jewelry and antiques
- precious metals
- works of art
- and valuable collections.
- Real estate: You do not need to transfer real estate held
by two people (joint tenancy or tenancy by the entirety) because it automatically
transfers to the other person if one owner dies. However, it may still be a good
idea to transfer this type of property into a living trust. This is because both
owners could pass away in a common disaster, or the surviving owner could forget
to place the property into a living trust at a later time. You should read your
home deed to determine how the property is owned.
- Small business interests: If you have a small business, sole
proprietorship, partnership interests, closely-held corporation or LLC, you should
consider placing the interest in the living trust. Please be aware that S corporations
have restrictions on ownership by trusts.
What Property does not go into a Living Trust?
- Property of little value:
It may be exempt from probate or subject to a streamlined probate process.
- Personal checking accounts. These are not typically
placed into living trusts since money moves in and out of them so frequently.
- Property that you buy or sell frequently: This is
especially true if you do not expect to own the property when you die.
- Cars: Most cars are not terribly valuable, and insurance
companies may be reluctant to insure a car owned by a trust. If, however, you do
own a valuable car, it may make sense to check with your insurance company to see
if it will insure cars owned by trusts.
- IRAs, 401(k)s, etc.: Technically, such accounts or funds
cannot be owned by a trust. You can still avoid probate on these monies if you directly
name a beneficiary to receive the funds in those accounts when you die.
- Life insurance: Your policy will directly designate a beneficiary.
- Income or principal from another trust: If you are receiving
interest or principal from another person's trust, you may not place this property
in your living trust to give to beneficiaries. However, you may give this interest
and principal to your beneficiaries through your will.
Selling Property in Your Trust
Even after you transfer property into a living trust, you can still sell
it in two ways. The first, and most common, approach is simply to sell the property
directly from the trust. In that situation, the seller of the property is the trust,
not you. The second approach, used mostly when an institution requests it, is to
transfer the property out of the trust and back to you as an individual before selling
it.
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