A Trust is often used to manage finances and protect assets. But what type of assets can be held in a trust? The answer may surprise you.
Trusts can be used to hold just about any type of asset, including cash, stocks, bonds, real estate, and even personal property such as artwork or jewelry. This blog post will explore the different types of assets that can be held in a trust.
How a Trust Works
A trust is a type of legal arrangement in which one person (the trustee) holds property or assets for another person (the beneficiary). There are many different types of trusts, but all have three basic components: The grantor (also called the settlor or trustor), the trustee, and the beneficiaries.
The grantor is the person who creates the trust and transfers ownership of property or assets to the trustee. The trustee is the person who manages the trust property and is responsible for carrying out the terms of the trust agreement. The beneficiaries are those who gain from the trust.
Trusts drafted by a will and trusts lawyer can be revocable or irrevocable. A revocable trust can be edited or canceled by the Trustor at any time. In contrast, an irrevocable trust cannot be changed or terminated without the consent of all parties involved.
What Types of Assets Can Be Held in a Trust?
Listed below are the types of assets held in a Trust:
1. Real Estate
Is placing your home in a Trust a good idea? You may ask. Well, since your home is one of the biggest assets you own, placing it in a living Trust has its benefits. It helps you avoid separate probate proceedings for land and estate properties owned within or outside the state.
A Trust helps you transfer Real Estate quickly. However, any property under mortgage would require a retitling into the name of the Trust.
When titling a transfer, you would also need to consider tax implications. You need a wills and trusts attorney to assist you with estate planning documentation. He or she can fill in for other state laws as far as documentation goes.
2. Financial Accounts
Trusts can hold a variety of financial assets. The type of asset held in a Trust will determine the rules and regulations that must be followed. Some of these assets owned may include:
- Money market accounts, cash, and savings
- Bonds and stock certificates
- Non-retired brokerage and mutual funds
- Certificates of deposit (CDs)
- Safe deposit boxes
Before you commit your savings to a Trust, it is required you check for any implications of these accounts being subject to regular withdrawals. Physical bonds and stock certificates require a change of ownership with the bond issuer.
Financial accounts like Annuities enjoy preferential tax treatment. If you transfer them, you might lose this advantage. As for certificates of deposit, they can only be transferred to a Trust when you open a new CD. It is a good idea to consult with your issuers in case of any penalty.
Safe deposit boxes are also transferable. They can also be issued to the living Trust upon passage of the Grantor. Finally, funding your Trust with a brokerage account will require new account paperwork and a signed authorization to transfer the asset.
3. Valuable Items
This includes personal property like jewelry, art, and furniture. Personal items with no legal claims are usually listed on an accompanying schedule kept with your trust documents.
Valuable items with legal certificates require the owners to abdicate the ownership of the items to the trust.
4. Collectible Vehicles
Some motor vehicles, like cars, may be able to retain their resale value over a longer period. This may be worth committing to your revocable living trust. Nevertheless, taxes and title transfers may also apply. Speak to your wills and trusts lawyer before considering a transfer.
5. Life Insurance
If you put life insurance in a Trust, you have the advantage of protecting it from creditors. This allows your loved ones easy access to your money by avoiding probate.
However, if you’re the trustee of your revocable living trust, all assets come under your ownership. Your life insurance will be counted as a part of your estate worth. This creates a taxable situation.
Why You Should Hold Assets in a Trust
There are many benefits of holding assets in a trust, including:
1. Asset Protection
One of the primary benefits of holding assets in a trust is that it can provide asset protection from creditors and lawsuits. If the settlor (the person who creates the trust) is sued or has creditors after them, their assets held in the trust may be protected from seizure.
2. Avoidance of Probate
Another benefit of holding assets in a trust is that it can avoid probate. Probate is the legal process through which a deceased person’s estate is distributed to their heirs. If an asset is held in a trust, it can bypass probate and be distributed to the beneficiaries directly, which can save time and money.
Holding assets in a trust can also provide privacy for the settlor and beneficiaries. Probate is a public process, so holding assets in a trust can keep information about the settlor’s estate private.
Trusts offer flexibility when it comes to distributing assets. The Trustor can specify how and when they want their investments to be distributed to beneficiaries. This can be helpful if there are particular circumstances involved (such as young beneficiaries who are not yet ready to receive a large sum of money).
5. Professional Management
Trusts can also provide professional management of assets for beneficiaries. This is important for those who are not capable of managing them on their own (such as minors or those with special needs).
How to Set Up a Trust
To set up a trust, you must choose a trustee and identify the beneficiaries. A wills and trusts lawyer will be tasked with drafting your documents. The trustee will be responsible for managing the trust assets by your instructions. The beneficiaries will receive the benefits from the trust according to your instructions.
You will also need to draft a trust document that outlines your wishes for how the trust should be managed. This document should be signed by you and the trustee. Once the trust is established, you should transfer ownership of the assets into the trust.
There are many different types of trusts that can be used to hold assets, and the best type of trust for you will depend on your goals and objectives. Talk to an experienced attorney or financial advisor to help you determine which type of trust is best for you and your family.