What Property to Put in a Living Trust

A revocable living trust is primarily created to help your estate avoid probate fees, and generally speaking, the more an item is worth, the more expensive it is to probate. That means your most valuable property is usually what belongs in the trust. Worth considering:

• Houses and other real estate, even if there’s a mortgage on them
• Brokerage accounts holding stocks, bonds, or other securities (though a transfer-on-death designation may work just as well)
• Small business interests, such as stock in a closely held corporation, partnership shares, or LLC membership interests
• Patents and copyrights
• Precious metals
• Valuable art, furniture, or antiques
• Valuable collections, like stamps or coins

You can add property to a living trust at any time, and since you typically remain the trustee, you retain full control, you can sell it, give it away, or move it back into your own name whenever you like.

A living trust isn’t the only tool for avoiding probate, and for some assets, other probate-avoidance options may make more sense. Even property that does go through regular probate generally incurs fees roughly proportional to its value, so the cost is usually modest for lower-value items.

Real Estate

For most people, real estate is their single most valuable asset, which is often the main reason people set up a living trust in the first place. You can transfer real estate into a trust even if there’s an outstanding mortgage; the loan follows the property into the trust and later to the beneficiary. You’re not required to notify your lender, though doing so can help avoid confusion down the road. You should, however, notify your homeowners insurance company so the trust is listed as an additional insured, since some insurers have denied claims when the property was held by a trust they weren’t told about.

If you already co-own property with someone else, or if your state allows a transfer-on-death deed, you may not need a living trust for that particular asset at all.

Small Business Interests

Letting a small business get tied up in probate can be genuinely damaging, since an executor may have to run it for months under court supervision. Using a living trust to transfer business interests quickly is often essential if you want the business to keep operating without interruption.

The process varies by structure. Sole proprietorships can transfer business assets into the trust like any other property. Partnership interests usually transfer easily unless the partnership agreement restricts it. Shares in a closely held corporation can typically be reissued in your name as trustee, though it’s worth checking the bylaws for restrictions and confirming your voting rights carry over. LLC interests generally require consent from other members per your operating agreement, though you can also transfer just the economic interest without voting rights if that’s simpler.

Bank Accounts

Bank accounts can be retitled into a living trust fairly easily by updating paperwork with your bank or credit union. Alternatively, a payable-on-death beneficiary designation accomplishes something similar without needing the trust at all, letting funds pass directly to a beneficiary at your death.

Retirement Accounts

IRAs and 401(k)s can’t be owned by a trust directly, since these accounts must be held in your own name. You can, however, name a trust as the beneficiary.

Cars and Other Vehicles

Vehicles you use regularly are usually more trouble than they’re worth to hold in a trust, since registration and insurance in a trustee’s name can create confusion. An exception might be a valuable antique car or a mobile home considered real estate under your state’s law. Many states also offer simpler vehicle-specific transfer procedures that avoid probate without a trust.

Property You Might Sell Soon

If you don’t expect to still own something at your death, there’s little reason to move it into the trust. Probate only applies to what you own when you die.

Life Insurance

Life insurance proceeds already bypass probate and go directly to your named beneficiary, so if avoiding probate is your only goal, there’s no need to name the trust as beneficiary. However, if a minor child is your beneficiary, naming your trust and specifying how an adult should manage the funds until the child comes of age can prevent a court from having to appoint a financial guardian. Note that life insurance proceeds, while they skip probate, are still counted as part of your estate for federal estate tax purposes.

Stocks, Bonds, and Other Securities

Registering securities under your name as trustee is generally a simple process handled by your broker or investment firm. Once retitled, everything in the account is held in trust and can be left to a specific beneficiary, or split across multiple beneficiaries if needed. Many states also allow transfer-on-death registration for securities, which accomplishes something similar without a trust.

Cash

You can’t transfer physical cash into a trust, but you can transfer ownership of a cash account, like a savings account or CD, and name a beneficiary to receive its contents. For smaller amounts, a payable-on-death savings bond or account may be simpler than setting up a dedicated trust account.