Revocable Living Trusts are an extremely common tool used to create a comprehensive estate plan that provides for probate avoidance and control of assets during lifetime and at death. While the Revocable Living Trust can be one of the most effective estate planning tools, there can be a major downside. If you do not fund your trust properly, it could fail to work as you intended. The funding process is arguably the most important part of setting up your trust and you will want to work closely with your estate planning attorney to make sure it is done correctly.
Let’s examine what types of assets can or should go into a Revocable Living Trust in order for it to work properly.
- Cash Assets. Checking and savings accounts typically can and will be titled into a Revocable Living Trust. Upon your incapacity, your trustee will have access to these accounts and will ultimately distribute the cash to the beneficiaries according to the trust terms.
- Non–Retirement Brokerage Accounts. Similar to cash accounts, they can and are usually titled in a client’s Revocable Living Trust.
- Real Estate. Most commonly and one of the most important assets titled in a trust is real estate. If real estate is solely titled at your death, it will need to go through probate. If there is property in multiple states, there may be multiple simultaneous probate proceedings in each state that you owned property.
- Vehicles. In Maryland, vehicles CAN be titled in a trust, but it is not recommended for most. The MVA does not have a great process for such titling and it can often be unreasonably complicated. If a car is titled with a joint owner, the easiest thing to do is to leave it joint. If it is individually titled, you may designate a beneficiary through the MVA’s website.
- Retirement accounts (IRA/401k/TSP/403b). These accounts cannot be titled into your Revocable Living Trust during your lifetime. It is extremely important to examine the beneficiary designations on these accounts. They can have a trust as beneficiary, but you need to be careful that the trust is drafted properly for the IRS rules.
- Annuities. Depending on the structure of the annuity, these may be titled in trust, but some may not. It is important to understand the type of annuity and then examine the beneficiary designations.
- Life Insurance. A policy can be titled in trust, but does not gain much benefit with that structure. A more typical recommendation is to re-designate the beneficiary of the life insurance policy to the trust.
These are some of the most common assets, but there are inevitably others. If you have an existing Revocable Living Trust, or are considering creating one, contact us to make sure that your asset titling matches the goals of your estate plan.