A revocable living trust, or RLT, is an estate planning tool that provides some protection to your assets while allowing you to use them during your lifetime. Then, after your death, the assets go to your beneficiaries with no probate. The RLT is funded with the assets you choose, and they’re retitled from your name to the trust’s name.
Which assets go into an RLT? Some assets should not go into your RLT. For example, any transfer-on-death assets need not be included in your RLT because those assets will already go to the designated beneficiaries without going through probate. Another example is special assets subject to special taxation laws, such as retirement accounts. Retitling some assets into the trust will cause unintended consequences.
Many factors come into play when making these decisions. Here are a few common assets and considerations.
Retirement Accounts and Qualified Annuities
As mentioned above, your retirement accounts—such as a 401k, 403b, IRA, or other qualified annuities—should not go into your RLT. For one thing, you’re already able to pass this asset to designated beneficiaries and avoid probate. In addition, these assets are subject to taxation rules. Transferring a retirement account into your RLT will likely be treated like a complete withdrawal and cause income tax liability. While you can name your RLT as a beneficiary of a retirement account, you likely do not want to retitle this kind of asset into the trust’s name.
Life Insurance Policies
A life insurance policy designates a beneficiary who will receive the proceeds when you pass away. This transfer does go through the probate process. So again, there’s no need to transfer your life insurance policies into the trust for the purpose of avoiding probate.
You can name the RLT as a beneficiary of your life insurance policy, but in the wrong circumstances, this could trigger estate tax liability.
Titled vehicles like cars, boats, snowmobiles, and motorcycles typically are not typically retitled in the name of your RLT. Some states allow vehicle owners to name an after-death beneficiary; some do not. Some states treat the title transfer to the trust as a sale and impose taxes. There are a lot of state-specific laws when it comes to putting a titled vehicle into an RLT or not.
Additional factors that come into play include the titled vehicle’s value, whether it will depreciate quickly or hold its value, as well as whether there is a loan against it. An additional consideration is liability. If the vehicle is titled in the trust’s name and is involved in an accident, the other trust assets may be exposed in a lawsuit.
Personal property includes items like collections, furniture, jewelry, and electronics do not usually go into the RLT. Personal property doesn’t have any kind title to transfer into the trust’s name and its distribution is usually handled in a trust provision or a separate memorandum.
One main benefit of transferring your real estate into your RLT is that this may avoid estate tax that the property would be subject to if it went through probate. Further, if you own real estate in more than one state, the convenience of avoiding probate in several different states is another potential benefit. One obstacle to retitling your real estate into the trust’s name is ownership. Real estate subject to a mortgage would typically have to be refinanced in the trust’s name, which might be challenging to achieve.
Most financial accounts are typically transferred into the RLT. Financial accounts include savings accounts, certificates of deposit, money market accounts, investment accounts, stocks and bonds, and mutual funds. The checking account you use for your regular expenses can also go into the RLT if you are the trustee of your RLT. This is because as the trustee, you manage the trust assets and have the power to pay bills from the assets.
Work with an Experienced Florida estate planning attorney.
We will help you determine the best way to handle each of your assets. Call our office at 561-395-6800 or fill out our contact form to schedule a meeting and we will be in touch to get that scheduled.