While placing assets into a trust can be a good financial move, what assets can and cannot go into the trust is an important question to consider. Figuring out how to set up a trust so that it is most beneficial to you and your beneficiaries is a complicated process. The best way to deal with the complication is to have the help of a skilled and knowledgeable estate planning attorney. The assets that you can or should not place into a trust are:
Retirement Accounts
Retirement accounts should not be put into a trust, as doing so defeats the purpose. For example, putting a retirement account such as a 401(k), IRA, 403(b),or certain qualified annuities into a trust would count as a withdrawal and likely trigger income tax on the entire amount of the retirement account, payable for the year of transfer. Although the retirement accounts should not be transferred to the trust in your lifetime, it may make sense in some cases to make the trust the beneficiary of the trust. Consult your estate planning attorney to learn more.
Medical or Health Savings Accounts
Medical or health savings accounts (MSAs or HAS) are tax-free and function as trusts in themselves already. Therefore, they are not allowed to be placed into a trust. It is possible, as it is with other tax-sheltered accounts, to make the trust the beneficiary of the MSA or HSA, but whether this is a good idea or not is impossible to generalize. For some people, doing so might have unfortunate tax implications for their beneficiaries.
Uniform Transfers or Uniform Gifts to Minors Accounts (UTMA or UGMA)
Uniform Transfers or Uniform Gifts to Minors Accounts (UTMA or UGMA) are accounts created to benefit minor children, with a custodian named on the account to manage the accounts until the child reaches a stated age. Because the account belongs to the child and not to you, you cannot put the account into your trust.
Life Insurance
Because a life insurance policy will have a named beneficiary and will not have to go through probate, there is no advantage to putting it in a trust. Making the trust the beneficiary of the life insurance policy may make sense in certain cases, but it is important to consult a knowledgeable estate planning attorney to be sure that this is a good idea in your particular case.
Why Do I Need an Estate Planning Attorney?
Navigating the issues that arise when a person dies can be very complicated for the family members at a time when they are focused on mourning the loss of a loved one. Having a clear and legal plan in place to deal with financial, medical, and legal issues after you pass away can be a gift to your family, freeing them from mountains of tedious paperwork, delays in inheritance, and, sometimes, exorbitant costs. Careful estate planning with the help of an experienced estate planning attorney can save your loved ones time, money, and headaches. You have done the best for them during your life; do the best for them in the future, too, when you are not here to take care of them. Our skilled estate planning lawyers are here to help.
