One of the most frequent questions I hear at the trust signing is “What should I put in my trust?” It’s an excellent question, and the answer is a bit more complicated than “Everything.”
The house is a given. For many people it’s their highest-value asset, and if it’s not in the trust at the time of death the estate will almost certainly go into probate – or best case, the trustee must petition the court for permission to move it into the trust, which is less hassle than a full probate but still takes time and money. It’s much easier for everyone if the house is put in the trust shortly after signing.
Bank accounts and other investment accounts are a little trickier. In a perfect world, I would recommend that these assets also be placed in the trust. The problem with this is that most banks will change the account number when they convert the account into a trust account. If you have a lot of automated transactions set up (e.g. direct deposit for your paycheck or Autopay for your electric bill), it will be a big hassle to update all those transactions with the new account numbers. So in most cases, I recommend that the client convert those accounts that don’t have a lot of automated transactions, such as their savings or money market accounts, and keep the bulk of their funds in these accounts, but leave their checking accounts alone.
Life insurance is a toss-up. Unless you’ve created an Irrevocable Life Insurance Trust (ILIT), it won’t make a big difference whether the policy is owned by you as a person or by the trust. In either case, the proceeds will go to whoever you’ve named as a beneficiary, and because it goes directly to a beneficiary it’s not subject to probate. Since it won’t make a big difference, there’s no real reason to go through the effort to put it into the trust. The better route for life insurance policies is to name your spouse as the primary beneficiary, and your trust as the contingent beneficiary.
Pay on death accounts, or any accounts with a named beneficiary, don’t need to be placed in a trust at all. They will pass directly to the beneficiary upon death, and will not be subject to probate.
Retirement accounts should not be placed in a trust, as a general rule. There are negative tax consequences to having a trust be the owner or recipient of these funds. In most cases, it’s better to name the intended beneficiary directly and not get the trust involved at all. A notable exception is when the intended beneficiary is a minor child, in which case the negative tax consequences will be put on hold until the child becomes an adult, and it might make sense to have the trustee manage the accounts until that time. It’s also possible to name someone as custodian of the account until the minor child reaches a certain age; you can discuss with an attorney which is the better option for your circumstances.
These are only general guidelines; for specific advice related to your circumstances please consult with an attorney. If you would like that attorney to be me, please feel free to reach out to me at firstname.lastname@example.org.