Setting up a trust can help you protect your property, secure financial security for your loved ones, and reduce the amount of taxes you have to pay. This guide will provide an overview of the steps necessary to transfer your property into a trust .
Understand What a Trust Is and How It Works.
A trust is created when someone puts property into a trust. That means the person transfers property to someone to hold “in trust.” A trust is a legally binding agreement between the trustee (the person who owns the property) and the beneficiaries (those who have an interest in the result of the trust) that sets out how certain assets are managed. The trustee is responsible for following the instructions provided in the trust document as well as for managing, investing, and distributing assets in accordance with those instructions.
How to put property into a trust.
Placing different types of property into a trust requires understanding and making certain key decisions.
Real estate (houses, land)
You transfer real property into a trust by recording a deed.
Cash and Investments
Cash and investments can typically go into a revocable living trust as well. You do this by using forms provided by the bank or financial institution.
Personal Property
You can also put personal property, such as jewelry and furniture items, can also be placed into a trust by using an “Assignment”.
Understanding how the different types of property fit into your trust is essential in order to properly structure your trust’s terms.
Understand When to Put Property into a Trust.
Before putting property into a trust, it’s important to understand what types of property you can place in the trust and how it will be classified. Real estate, cash, investments, and personal items are all types of assets that people commonly place into a trust. However, IRAs and 401Ks typically do not belong in a trust.
Also, every state will have its own rules about when an asset (personal property or real property) needs to go through probate. If you want to avoid probate, then you should probably put those assets into your trust.
In determining which properties to put in a trust, think carefully about the long-term implications of placing each one in the Trust and what your ultimate goal is for them. It’s best to consult an estate plan attorney for guidance about all of this.
What property should you not put into a trust.
It’s important to understand that not all property is eligible for a trust.
How is your trust taxed?
If your trust is taxed to you (such as a Grantor Trust), then you can put personal assets such as your personal residence in that trust. However, if you want the asset to be taxed to someone else (such as your kids), then you need to use a different type of trust.
Pensions and Retirement Plans
You typically should never put your IRA, 401K, pension plan or similar accounts into a trust. However, sometimes you can name your trust as the beneficiary of these account. You would do that if your beneficiaries are minor children or on government benefits (for example). In that case, your trust needs special language to avoid adverse tax consequences.
“Dangerous” assets should get segregated
Generally, you should never place dangerous property in the possession of a trustee, as this could cause legal complications. For example, a rental house should typically go in an LLC (and that LLC can be owned by the trust).
These are just some example
This is not a comprehensive list of things to avoid putting in a trust. Talk to your estate plan attorney for guidance about all of this.
If you have questions about putting property into a trust, give us a call.
Trusts can provide a secure and stable form of ownership for your property, and there are multiple types of trusts that you can consider when deciding how to pass down your possessions to future generations. We can answer any questions you may have about setting up a trust and help walk you through the process. Please don’t hesitate to give us a call today at 602-443-4888.
