Pennsylvania residents who choose to set up a living trust may have many questions about what assets should be placed into the trust. The main purpose of a living trust is typically to prevent the assets in the trust from going through the probate process after you pass away.
Avoid placing these items in a trust
The following items should be left out of a living trust:
- Retirement accounts
- Health savings accounts
The Internal Revenue Service treats a retirement account which is placed into a trust as a distribution of the account. This means it is treated the same way as if you had cashed out the account. You will have to pay taxes and fees on the entire amount of the account.
The same goes for health savings accounts, which allow you to withdraw cash for medical expenses tax free. Placing the account into a trust will be viewed as a distribution for non-medical expense related purposes, resulting in taxes and other penalties.
Vehicles may be placed into a living trust; however, it may make more sense leave them out. Each vehicle placed into a living trust must be retitled, which can be costly and cumbersome. Additionally, your goal with your living trust is to avoid probate, vehicles do not go through the probate process, so there is no real advantage to placing them in a trust.
Real estate, financial accounts and personal property
Real estate and non-retirement financial accounts should be placed in a living trust. Placing real estate into a trust will increase efficiency not only by avoiding the probate process, but by shortening the time required to transfer the real estate to your intended beneficiaries. Non-retirement accounts such as stocks, bonds, savings accounts, money market accounts and mutual funds are good assets to place in a living trust.
Additionally, placing personal property, such as art, jewelry or family heirlooms, in a trust has many advantages. These assets do not required retitling, and if you have a list of who you want to receive each item, the distributions can be made easily if the items are safely secured in a trust.
What goes in a living trust depends on your specific financial situation. An estate planning attorney can advise you on how to best fill your trust.