Bay Area Estate And Tax Planning Law Firm

Not all types of assets go into a revocable living trust

On Behalf of | Feb 13, 2023 | Estate Planning, Trusts |

A revocable living trust in California is the transfer of ownership of your assets into the trust to manage and distribute them after your death. However, not all assets are suitable for inclusion in a trust. Some assets may be better left outside of the trust to avoid complications. Here are some assets you should consider excluding from your revocable living trust.

Retirement accounts

401(k)s, IRAs, and other retirement accounts cannot be included in trusts. This is because these types of accounts have their own beneficiary designations and distributing them through a trust can cause unintended tax consequences. Additionally, including these accounts in the trust can cause the loss of certain tax benefits and protections.

Life insurance policies

Similarly, life insurance policies should also be excluded from trusts. Life insurance policies also have beneficiary designations, and transferring ownership to a trust can cause the policy’s proceeds to be taxed as estate income. Keeping life insurance policies separate from your trust can also ensure that the proceeds are paid directly to your beneficiaries without the delay and expense of going through probate.

Real estate and primary property

Lastly, it is essential to note that real estate that is not your primary residence may not be ideal for inclusion in your trust. Transferring ownership of rental properties or vacation homes to a trust can trigger reassessment for property tax purposes, potentially leading to higher taxes. Furthermore, if you plan on selling the property in the future, transferring ownership to a trust can cause complications in the sales process.

Estate planning tool

A revocable living trust can be a helpful tool for estate planning, it is important to consider which assets should be included carefully. Excluding certain assets from your trust can ensure that your estate is managed and distributed according to your wishes and minimize potential complications.