Should You Fund Your Trust Or Make It a Beneficiary?

If you have a Revocable Living Trust you can either fund your estate assets into the Trust or name the Trust as a beneficiary. Which way you choose will depend upon the asset.

Life Insurance Policy You can fund your life insurance policy into your trust, but when do so you must use caution. Some state laws may not protect a Revocable Living Trust from creditors. In this case your life insurance money may be used to pay debts.

Funding your policy into your Trust can, however, allow your trustee quick access to funds before and after your death. If you should become mentally or physically incapacitated, your trustee may be able to borrow against the policy if it is funded into your account. These funds can be used to care for your medical and personal well-being.

Financial Holdings Most accounts that are not retirement accounts set up through your employment can be easily funded into your Trust. These accounts include your savings accounts, checking accounts, non-retirement investments, and money market accounts. You can also fund a mature certificate of deposit into your account. If you prefer, you may instead name a pay on death beneficiary for many of these accounts. You must, however, stay on top of updating all beneficiaries as needed.

If, however, an account has tax deferment status as many retirement accounts do, you may want to name your Trust as a beneficiary instead of funding it into the Living Trust. When you fund a tax deferred account such as a 401K, the income taxes will become immediately due.

Personal Items Most personal items such as housewares, jewelry and clothing can be funded into your Trust. You may also fund vehicles, but there is a chance you may have to pay taxes when the Title is transferred from you to your Trust. You also run the risk of creating a liability for the trust if the vehicle is involved in an accident.

Real Estate A Living Trust is one of the best places to title your real estate because it can help your land holdings pass easily from you to your heirs upon your death. Using a Trust to bequeath land is a great way to help your property avoid probate.

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Which Is Best, A Will Or A Living Trust?

You don't have to be wealthy to need a will in regards to your personal property. After you're gone, legal wrangling can become time consuming for family members left behind and often creates indecision and fighting amongst potential beneficiaries as your wishes may not be clear. A will is usually straightforward and simply put is a legal document that specifies how your property will be dispersed at the time of your death. It can be revoked or amended at any point in your lifetime, and can be used to appoint a guardian for any children that are not yet of legal age.

Another option to be considered is a living trust. A living trust handles property management of all assets and all of these assets are transferred to the trust. Typically, you will act as your own trustee while specifying who will act as trustee upon your death. A living trust has the added benefit of avoiding probate after you die and preventing public disclosure of all your private financial matters. A living trust does have some drawbacks. It must be maintained and any new property acquired must be transferred to the trust or it will not be under the protection of the trust. A living trust is also more expensive to initiate and must be managed. Generally a living trust is recommended if your estate exceeds a specific dollar amount, you have minor children, you're willing to manage the trust, and if you want control of when your beneficiaries receive any assets.

A simple will might be a better option if there is informal probate available where you live. Informal probate is a greatly expedited form of probate and is generally available to those whose estate is under a certain dollar amount. If you are single without children, and you don't own a business, it probably isn't necessary to set up a living trust and a simple will is sufficient. Upon your death, the executor of your estate will submit your will along with a petition to the probate court. The petition requests that the will be accepted as legal and valid and request that the executor named in the will be legally appointed. Any heirs, beneficiaries, or creditors must be notified of the submission of the will and have a specific amount of time to challenge it or submit claims against the estate.

This process does not apply to living trusts, which is why many people opt for a living trust versus a will. Each person's situation is unique and should be evaluated by an attorney who is familiar with estate law. Talk to your family and determine who will handle your affairs after your death. With everyone understanding who will handle which aspects of the estate and what to expect, the loss of a family member is a less stressful one.

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