Updated: August 24, 2018
The creation of a living trust allows you to avoid probate fees. Typically, the more valuable an item or asset is, the greater the cost to probate it. As a result, your highest value assets should generally be placed in your living trust. Items to consider adding to the trust include:
Houses and other real estate (even if they're mortgaged)
Stock, bond, and other security accounts held by brokerages (but think about naming a TOD beneficiary instead)
Small business interests (stock in a closely held corporation, partnership interests, or limited liability company shares)
Patents and copyrights
Valuable works of art, furniture or antiques, and
Valuable collections of stamps, coins, or other objects
There are ways other than a living trust to avoid probate for certain assets – so you don’t need to put all of your assets in the trust. For some property the value is low enough that the corresponding probate fees will be fairly low. Following is a discussion of different types of assets you may want to put in your living trust:
For many people, their most valuable possession is real property, namely, their home. Transferring your home to a living trust can save a substantial amount of probate fees.
It is possible to place real estate in a living trust even when there is an outstanding loan such as a mortgage on it. The loan’s status is unchanged by the title change and will still apply to the property while it’s in the trust.
Small Business Interests
Avoiding probate for your small business ownership interests by using a living trust can help the business continue to function smoothly after your death. If these interests are tied up in probate it can result in your executor having to operate the business under the supervision of the court. A living trust allows you to quickly transfer ownership to your chosen beneficiaries so they can run the business without interruptions caused by probate.
There will be different issues to consider depending on the type of business organization you are transferring ownership of to your living trust:
Sole proprietorship: If you conduct your business as a sole proprietorship and the assets of the business are in your name, transferring the business property to your living trust is done as it would be with other property. The name of the business itself should also be transferred in order to transfer the customer goodwill that goes along with the name.Partnership: If your business is operated in conjunction with partners, it should be relatively easy to transfer your proportionate interest in the partnership to a living trust. If a partnership certificate is in use, it should be changed to note the trust’s ownership of your share. In some rare cases, a partnership agreement limits or prohibits transferring ownership interests to a living trust. In such a case, you may want to see an attorney before moving forward with any ownership transfer.Limited liability company: To transfer ownership to your trust if you operate as an LLC requires the approval of either a majority or the totality of other owners of the LLC. It may be advisable to change your trust document to provide the specific ability to become involved with limited liability companies.
To hold a bank account in the name of your living trust simply requires changing the registration of the account with the bank. If you prefer keeping your bank account in your own name you may want to consider using a payable-on-death-beneficiary instead of transferring the account to your trust. Such an arrangement causes the funds in the account at your death to go directly to your beneficiary without passing through probate.
IRAs, 401ks and Keough plans have their own beneficiary designations. The ownership of these types of accounts can’t be given to a trust, although the trust can be named as a beneficiary.
While the ownership of vehicles can be transferred to your living trust, having a trust own such assets can be impractical. It can confuse insurance and registration information, for one thing. As a result, most cars are kept in individual ownership, with the possible exception of very valuable collector’s cars that are held by trusts to avoid probate fees.
Life insurance policies you own do not pass through probate when distributing funds to your named beneficiaries. However, in cases where the beneficiary of a policy is a child you might want to name the living trust as the insurance policy’s beneficiary in order to arrange for an adult to manage the funds while the child is a minor. To do so, stipulate in your trust document who is to manage the funds for the child after your death. While the proceeds of life insurance policies in your name are delivered directly to the beneficiaries without probate, they are calculated as part of your estate for the purpose of federal estate tax computation. If you’re interested in looking into methods to keep life insurance proceeds from your taxable estate you should consult with an attorney with expertise in the area.
Securities can be transferred into the name of your living trust with relative ease. Brokers and mutual fund firms deal with such transfers on a regular basis and can help you accomplish them. You can use your trust to leave the contents of a specific account to one beneficiary or designate multiple beneficiaries for particular accounts if you so desire.
If you’d like to avoid any potential inconvenience associated with placing securities in your living trust you can use transfer-on-death registration as an alternative. This allows the designated beneficiary to receive the securities after your death without them passing through probate.
Call us for a free consultation
If you or a loved one needs help setting up a living trust, call Amity Law Group today at (626) 307-2800 for a free consultation with our Los Angeles estate planning lawyers. We serve clients throughout Southern California, including Los Angeles, Pasadena, Arcadia, San Gabriel, and Rosemead