Preserving Your Wealth: Assets to Exclude from a Living Trust

A living trust is a valuable tool for estate planning that can help you preserve your wealth and pass it on to your beneficiaries. It allows you to transfer ownership of your assets to a trust, which is managed by a trustee, and distribute them to your heirs after you pass away. However, not all assets should be included in a living trust. In this article, we will discuss the assets that you should exclude from your living trust to preserve your wealth.

What is a Living Trust?

A living trust, also known as a revocable trust, is a legal document that allows you to transfer ownership of your assets to a trust while you are alive. You can act as the trustee and manage the assets, but you must appoint a successor trustee to manage them after your death. The trust will outline how the assets are to be distributed after your death.

Assets to Exclude from a Living Trust

While a living trust can be an effective estate planning tool, there are some assets that you should not include in the trust. Here are some examples:

1. Retirement Accounts – Retirement accounts, such as 401(k)s and IRAs, should not be included in a living trust. These accounts already have beneficiary designations, which will determine who receives the assets after your death. If you include them in your living trust, you could potentially trigger unnecessary taxes.
2. Life Insurance Policies – Life insurance policies should not be included in a living trust because they also have beneficiary designations. The proceeds of the policy will go directly to the beneficiary, bypassing the trust. Additionally, including a life insurance policy in a living trust could cause the policy to be taxed.
3. Jointly Owned Property – Property that you own jointly with another person, such as a spouse or business partner, should not be included in a living trust. When one owner passes away, the property will automatically transfer to the surviving owner.
4. Vehicles – Vehicles should not be included in a living trust because they are subject to state-specific laws regarding the transfer of ownership. Instead, you should ensure that the title of the vehicle is properly transferred to the intended beneficiary after your death.
5. Digital Assets – Digital assets, such as social media accounts and digital files, should not be included in a living trust because they are subject to specific terms of service agreements. Instead, you should make sure that you have designated someone to manage your digital assets after your death.

Other Considerations When Planning Your Estate

In addition to excluding certain assets from your living trust, there are other considerations to keep in mind when planning your estate. Here are a few:

1. Charitable Donations – If you want to donate a portion of your estate to a charity, you may want to consider setting up a charitable trust. This can provide you with tax benefits and allow you to make a significant impact on the charity of your choice.
2. Business Succession Planning – If you own a business, you should consider creating a business succession plan. This will ensure that your business can continue to operate after your death and provide for your family.
3. Estate Taxes – Depending on the size of your estate, you may be subject to estate taxes. You should consult with a financial advisor or estate planning attorney to determine the best strategies for minimizing your tax liability.

Benefits of a Living Trust

Despite the assets that should be excluded from a living trust, there are many benefits to using this estate planning tool. Here are a few:

1. Probate Avoidance – Assets in a living trust do not go through the probate process, which can save time and money for your beneficiaries.
2. Privacy – Unlike a will, which is a public document, a living trust is a private document. This means that the details of your estate and beneficiaries are not made public.
3. Flexibility – A living trust can be easily amended or revoked if your circumstances change.
4. Incapacity Planning – A living trust can also provide for incapacity planning by appointing a successor trustee to manage your assets if you become incapacitated.

Working with an Estate Planning Attorney

Creating a living trust and planning your estate can be complex and confusing. It is important to work with an estate planning attorney who can help you navigate the process and ensure that your wishes are carried out. Here are some of the benefits of working with an attorney:

1. Customized Estate Plan – An attorney can help you create a customized estate plan that meets your specific needs and goals.
2. Legal Expertise – An attorney can provide legal expertise and guidance throughout the estate planning process.
3. Peace of Mind – Working with an attorney can give you peace of mind knowing that your estate plan is in order and will be carried out according to your wishes.

Conclusion

In conclusion, a living trust can be a powerful tool for preserving your wealth and passing it on to your beneficiaries. However, certain assets should be excluded from the trust to avoid unnecessary taxes and complications. It is important to work with an estate planning attorney to ensure that your estate plan is tailored to your specific needs and goals. By taking the time to plan your estate now, you can ensure that your loved ones are provided for and your legacy is preserved.