Properties That Are Commonly Held in Trust
Nov. 16, 2024
In estate planning, creating a trust can be a powerful tool for managing and protecting assets, confirming that your property is distributed according to your wishes, and minimizing taxes.
Trusts offer flexibility and control over how your assets are handled both during your lifetime and after your death. One of the most important aspects of setting up a trust is determining which types of property you want to place into it.
Let’s explore the types of properties commonly held in trust, how these assets can benefit from being placed in a trust, and why doing so might be a smart move for your estate planning needs.
If you or a loved one requires estate planning services, check out what I offer at Eric H. Light, PA. I’m committed to offering quality trust services to the people of Boca Raton, Florida.
What Is a Trust?
Before diving into the specific properties commonly held in trust, it’s essential to understand what a trust is and how it functions in estate planning.
A trust is a legal entity created to hold assets on behalf of one or more beneficiaries. There are different types of trusts—revocable and irrevocable being the most common.
A revocable trust allows the person creating the trust (the grantor) to retain control over the assets and make changes to the trust during their lifetime. This type of trust becomes irrevocable upon the grantor's death.
An irrevocable trust, on the other hand, can’t be modified once established. Assets transferred into an irrevocable trust are no longer legally owned by the grantor, which can have benefits in terms of tax liability and creditor protection.
Now that we've covered the basics, let's examine the types of properties commonly held in trust.
1. Real Estate
One of the most frequently placed assets in a trust is real estate. This can include your primary residence, vacation homes, rental properties, or even undeveloped land.
By placing real estate into a trust, you make sure that the property passes to your chosen beneficiaries without having to go through probate, which can be time-consuming and costly.
Holding real estate in a trust provides several benefits:
Avoiding probate: Placing real property in a trust bypasses the probate process, meaning your heirs can take possession of the property more quickly and without added legal expenses.
Protection of the property: If you place real estate into an irrevocable trust, it can help protect the asset from creditors or legal judgments.
Estate tax minimization: Real estate placed in certain types of irrevocable trusts may not be subject to estate taxes upon your death, potentially saving your heirs a significant amount of money.
Trusts also allow you to outline specific instructions for how the property should be used or distributed.
For instance, you could direct that a family home remain in the trust for multiple generations, or that rental properties generate income for a beneficiary while confirming the property itself remains intact.
2. Financial Accounts
Another common type of asset to hold in a trust includes various financial accounts, such as:
Bank accounts: Savings accounts, checking accounts, and certificates of deposit can be transferred into a trust to confirm seamless access for your beneficiaries after your passing.
Investment accounts: Stocks, bonds, mutual funds, and other securities are often placed into trusts. Doing so can help maintain the tax benefits of certain investment accounts while also giving your beneficiaries immediate access upon your death.
For individuals concerned about how beneficiaries will manage their inherited financial assets, a trust offers a safeguard. You can appoint a trustee to manage and distribute funds according to your specific instructions, confirming that the money is used responsibly.
3. Life Insurance Policies
While life insurance policies pay directly to named beneficiaries upon your death, placing your life insurance policy into a trust can be a wise estate planning move. This is especially important for individuals with large estates concerned about estate taxes.
Irrevocable life insurance trust (ILIT): By placing a life insurance policy in an irrevocable trust, the death benefit paid out to beneficiaries can be shielded from estate taxes. Without this, the value of the life insurance payout could increase the size of your taxable estate, potentially subjecting it to estate taxes. An ILIT can help avoid this situation.
Control over proceeds: A life insurance trust allows you to control how the death benefit is used. For example, you can stipulate that the funds be paid out in installments rather than as a lump sum, preventing heirs from mismanaging a large payout.
4. Business Interests
For those who own a business, placing business interests into a trust can be an effective way to make sure that the business is managed or transferred according to your wishes in the event of death or incapacity.
Whether you own a sole proprietorship, an interest in a partnership, or shares in a corporation, a trust can help facilitate a smooth transition of ownership.
Succession planning: By placing business interests in a trust, you can outline a detailed succession plan that confirms the business will continue to operate according to your instructions. This is particularly important for family-owned businesses, where disputes over control and ownership can arise after a business owner’s death.
Tax advantages: Business assets held in an irrevocable trust may be shielded from estate taxes, providing significant tax relief for your heirs.
5. Personal Property and Valuable Collections
Trusts aren’t just for large assets like real estate or financial accounts; personal property can also be placed in trust. This can include items like:
Jewelry
Art collections
Antiques
Family heirlooms
Vehicles
By placing valuable personal property into a trust, you can make sure that these items are distributed according to your wishes without going through probate. You can also prevent disputes between family members over who inherits what, by clearly outlining how each item should be distributed.
For individuals with significant collections of valuable items, such as artwork, rare books, or coins, a trust provides an extra level of protection. Trusts can help manage these assets and make sure they’re properly maintained, sold, or passed on as you desire.
6. Retirement Accounts (With Limitations)
While retirement accounts like IRAs and 401(k)s can’t be directly placed into a trust due to tax implications, a trust can still be a beneficiary of such accounts.
Naming a trust as the beneficiary of your retirement accounts can provide more control over how those funds are distributed after your death.
By creating a trust as the beneficiary of an IRA, you can structure the payout of retirement funds to heirs over time, rather than as a lump sum, helping to reduce the tax burden and make sure that the money lasts longer for your beneficiaries.
7. Vehicles
You may not immediately think of vehicles as assets to place into a trust, but cars, motorcycles, boats, or other vehicles can be included. If you wish to transfer your vehicle to a loved one upon your death without the hassle of probate, placing it in a trust can streamline the process.
Similar to real estate, transferring vehicles through a trust avoids the probate process, making it easier for your heirs to take possession of the vehicle.
Take the First Steps
From real estate to financial accounts, life insurance policies, and personal property, there are many types of property that can be held in trust. Reach out to me, Eric H. Light, PA today for more information on taking the first steps to planning your estate in Boca Raton, Florida.