If you're considering setting up a trust as part of your California estate plan, you may be wondering what kinds of assets you can and should transfer into the trust. The answer depends on your specific goals and circumstances, but in general, you'll want to include assets like real estate, financial accounts, business interests, and personal property of high value. The key is to work with an experienced estate planning lawyer who can guide you through the process of selecting and transferring the right assets to maximize the benefits of your trust.
At Kavesh, Minor & Otis, our experienced California estate planning lawyers can guide you through the process of deciding which assets to include in your trust based on your unique goals and circumstances. We'll work with you to create a comprehensive plan that protects your legacy and provides for your family's future.
Types of Assets That Can Be Held in a Trust
You can transfer many types of assets into a trust, but that doesn’t mean everything you own has to go in one. In fact, some assets might be better handles through other estate planning tools! Here are the most common assets people place in a trust:
Real Estate
Your home, rental properties, and vacation homes can all be transferred into a trust — simply by retitling them in the trust’s name. This keeps them out of probate while letting you stay in control during your lifetime! And here in California, placing your primary residence in a trust won’t mess with your property tax benefits, so you keep those important savings.
Financial Accounts
Bank accounts, investment accounts, and brokerage accounts can be retitled in the name of the trust or named as payable on death to the trust. This gives your successor trustee immediate access to manage these trust assets according to your wishes after you pass away. However, retirement accounts like 401(k)s and IRAs have special rules and may be better suited for designated beneficiaries rather than your trust.
Business Interests
If you own a small business or have an interest in a closely held company, you can transfer those assets to your trust. This is particularly useful for ensuring continuity of the business and providing management instructions to your successor trustee. For example, your trust could specify that your shares in a family business should be divided equally among your children.
Personal Property
While your trust can hold tangible personal property like furniture, jewelry, and collectibles, it's often simpler to use a "pour-over will" to transfer these items to the trust after your death. For items of high financial or sentimental value, you may want to create a personal property memorandum detailing how specific items should be distributed.
Life Insurance
Naming your trust as the beneficiary of your life insurance policy can be a smart move — it gives your trustee quick access to funds after you’re gone. This makes it easier to handle expenses, pay off debts, and manage the trust without delay. Just keep in mind that there could be tax considerations, so it’s always a good idea to check with a California estate planning attorney first!.
Special Considerations for Certain Types of Trusts
The types of assets you'll want to include in your trust can vary depending on the specific purpose of the trust. Here are a few examples:
Revocable Living Trusts
A revocable living trust is a common tool for avoiding probate and managing assets during incapacity. Most people choose to transfer the majority of their assets, including their home, bank accounts, and investments, to their revocable trust. However, you'll still need a pour-over will as a safety net to catch any forgotten assets and transfer them to the trust after your death.
Irrevocable Trusts
Irrevocable trusts, which cannot be easily changed or revoked, are often used for tax planning and asset protection purposes. These trusts may hold specific assets like life insurance policies or business interests to remove them from your taxable estate. Transferring assets to an irrevocable trust is a permanent decision, so it's crucial to work with a knowledgeable lawyer to ensure it aligns with your long-term goals.
Special Needs Trusts
If you have a loved one with special needs, you may want to create a trust to provide for their care and support without jeopardizing their eligibility for public benefits. A special needs trust can hold a variety of assets, but it's important to choose assets that will provide a reliable stream of income to meet the beneficiary's needs. Your lawyer can help you select appropriate funding assets, such as life insurance or income-generating property.
The Importance of Properly Transferring Assets
Creating a trust agreement is only the first step. For the trust to function as intended, you must complete the process of transferring assets into the trust. This process is called "funding" the trust.
Failing to properly transfer trust assets can lead to unintended consequences. Assets left out of the trust may have to go through probate, which can be time-consuming and expensive. Improper titling of real estate could lead to a reassessment of property taxes. Mistakes in beneficiary designations could lead to assets being distributed in a way that contradicts your wishes.
That's why it's so important to work with an experienced California estate planning lawyer who can guide you through the funding process and ensure that your assets are properly aligned with your estate plan. Your lawyer can help you decide which assets to transfer, prepare the necessary paperwork, and coordinate with financial institutions and other professionals to complete the funding process.
Updating Your Trust Over Time
It’s important to remember your trust isn’t set in stone. It should, ideally, evolve along with your life circumstances. As you acquire new assets, such as a vacation home or a significant investment account, you'll need to decide whether to transfer those assets to your existing trust or create additional trusts for specific purposes.
It’s a smart idea to revisit (and review!) your estate plan, including your trust and the assets it holds, every few years and after major life events like marriage, divorce, the birth of a child, or the death of a beneficiary. Your lawyer can help you evaluate whether your current plan still aligns with your goals and make any necessary updates.
