When beginning the estate planning process, most people begin with creating a will and other documents like healthcare directives, medical power of attorney, and funeral arrangements. However, they often forget about living trusts, which have many unique benefits. Unlike a will, a living trust allows an individual to transfer assets to loved ones and avoid the probate court process entirely for the assets placed in the trust. Below are some of the most common questions about living trusts, along with answers to these questions.
What Should I Know About a Living Trust?
A living trust allows the creator—also known as the grantor—to transfer assets to beneficiaries after they have passed away without having those assets go through probate, unlike those bequeathed in a will. The grantor still holds ownership to the assets in the trust until they pass away, meaning the grantor can remove or add assets in the trust—or change the named beneficiary—until their death. Once the grantor dies, the assets are distributed to the beneficiary of the trust.
What Assets Should be Placed in a Trust?
There are some assets that estate planning attorneys recommend placing in a trust, and there are some assets and accounts they recommend do not go in a trust. Some assets that people can fund a trust with include financial accounts, like stocks, mutual funds, bank savings accounts, and money market funds. Property, like a title to a house, can also be put in a trust. While individuals may become hesitant about putting such valuable assets in a trust, it is critical to remember that the trust is revocable, and the assets can be removed at any time. Personal property, like family heirlooms, can also be put in a trust. While most people will instead put these items in a will, a will becomes a matter of public record, unlike a living trust.
However, some accounts that should never be placed in a trust are assets in retirement accounts, such as 401(k) plans and IRAs. Similarly, estate planning attorneys recommend that individuals do not place health savings accounts—which allow tax-free withdrawals for health expenses—in trusts either. If these assets are placed in the trust, they are treated by the IRS as a distribution, meaning the grantor must pay income tax on the entire amount of the account.
Because creating a living trust is a highly recommended step for many individuals, people should reach out to an experienced attorney as they go through the estate planning process.
Contact a Houston Estate Planning Attorney
If you or a loved one is interested in creating a living trust, contact the Houston estate planning attorneys at McCulloch & Miller, PLLC. With decades of experience advising clients on a wide variety of estate planning issues—such as drafting wills, inheritance and retirement planning—we are here to answer any questions you may have. With our assistance, we will make sure that navigating the estate planning process is an ease. To schedule a free, no-obligation consultation and to speak with one of our attorneys, give us a call today at 713-333-8900.