Savvy estate planners know that revocable living trusts are a cornerstone of any comprehensive estate plan. However, knowing exactly what to put in the estate plan can be a challenge.
Generally speaking, the main goal of a revocable living trust is to help your heirs avoid probate. Probate can potentially take years to get through, and during this time, your heirs will not have access to your assets. Thus, the best things to put in your revocable living trust are assets that you wish to avoid probate, as it is likely that these are the most expensive assets you own.
Thinking traditionally: real estate and business interests
For the majority of Americans, the most expensive asset they own is real estate. Many people create a living trust for the sole purpose of ensuring that their home avoids probate after they die.
It is possible for you to put your real estate into a revocable living trust even if you still owe money on it. Any loans associated with the property like a deed of trust or mortgage will go with the property into the trust and then the responsibility for that will go to the beneficiary after your death. Essentially, the debt will stay with the property, but the existence of debt does not preclude property from the benefits associated with a living trust. Even though your heir will inherit any debts associated with the house, the property will still avoid probate.
If you have business interests, probate can be particularly difficult to get through. With no living trust to protect the business, a lack of one means that your successor will need to continue to run the business for however long it takes to get through probate. Additionally, the court must supervise the successor during this time, which severely complicates matters. This is why a living trust is all but essential concerning matters involving businesses and inheritance.
The right approach to protecting your business from probate and the interests of your heirs depends on the type of company that you have an interest in. The best strategy also depends on how many other partners you have pursuant to that business interest and their relationship to you. Some forms of partnerships limit the ability to transfer business interests to a living trust: in this case, you will require professional assistance. Looking closely at the bylaws of your company is paramount.
What about cash?
It is not possible for you to transfer direct cash to a living trust. However, you may transfer ownership of a cash account to the trust instead. You can then name whichever beneficiary you would like to inherit the contents of that account. Another potential option would be to buy savings bonds and designate an individual as a payable on death beneficiary.
Likewise, you cannot assign 401(k)s or other retirement accounts directly to a trust. However, you may indicate a living trust as a beneficiary of a particular account.
Coming up with an estate plan is complex. There are many things you must consider before setting one up. Contact us today at AmeriEstate to learn how revocable living trusts can help you set up your beneficiaries for success.