June 29, 2021
What You Can’t Put in Trusts
Like with wills, there are things you can’t or shouldn’t put into your trusts. Trusts take care of your estate and loved ones after you pass away in a way that wills can’t. There are several types of trusts that you can use, including a living trust, a testamentary trust, and a grantor trust. They each work in different ways to serve the property, the trustee, or your wishes as you see fit.
Trusts are typically the place where you include things you couldn’t put in your will, but that doesn’t mean that there aren’t things that can’t go into your trust. We put together the four most common things people have tried putting their trust that they shouldn’t.
#1. Qualified Retirement Accounts
Consider officially qualified retirement accounts, such as 401(k)s, 403(b)s, IRAs, and annuities, and the money in them itself. The money in these kinds of retirement accounts should not be transferred into a trust. If you try doing this, it would be a complete withdrawal of those funds, subjecting all the account’s money to income tax. This defeats the purpose of a retirement account, entirely.
Instead, we recommend naming a trust as the beneficiary of the accounts, so a trustee will receive ownership of the account. This may seem like a small difference, but it’s a key difference. You should not be putting this money or putting an account of sorts into a trust. The wording and legality of doing it this way can allow whoever receives it, to receive far less than you intended, if at all if you do this far ahead of your own passing.
#2. Health/Medical Savings Account
Health and Medical Savings accounts (HSAs & MSAs) are a lot like qualified retirement accounts in this situation. They’re tax-exempt accounts with a predesigned purpose, essentially a trust of their own for you. This means they cannot be changed, switched, or transferred to another trust.
Like with qualified retirement accounts, you can assign your next living trust as the beneficiary of the account after you die. But unlike with retirement accounts, you can’t even remove the money in this account like you could a retirement account since it is meant to pay for health purposes only.
#3. Life Insurance
Life insurance is already set to pass to the person named as the beneficiary on the policy. You could make the living trust the beneficiary of the policy, but it’s unnecessary if it’s already set up to your specifications.
#4. Motor Vehicles
The process of changing the title of any motor vehicle to that of your living trust is incredibly long and tedious. It’s so much so that you may pass away before it’s finished if you’ve waited to make a trust. So even if you wanted to skip the part of trying to place a motor vehicle in your trust and try to assign it to the living trust, it still wouldn’t be worth it.
The DMV actually has a far simpler process for transferring vehicles to another after death, without going through probate.
#5. Another Trust
You cannot make a trust the beneficiary of another trust. To try doing this would just be increasing the size of the original trust with extra steps.
You need a trust. Mazzoni Karam Petorak & Valvano can help you.
If you need a trust, the Scranton real estate planning attorneys at Mazzoni Karam Petorak & Valvano can help you. We can guide you through the process of making sure your wishes can and will be followed after your passing.
Contact the estate planning attorneys of Mazzoni Karam Petorak & Valvano today.