When Is a Living Trust the Right Addition Your Estate Plan?

A living trust can accomplish many different goals, but it can also be used improperly or used in a way that does not accomplish your estate planning goals. You’ve probably heard plenty about the advantages of structuring a living trust. You can, for example, avoid your assets having to go through probate, a potentially expensive and time consuming process.

You can also name a secondary trustee or successor trustee to manage your estate after you have passed away, which can be very beneficial if you want to control the flow of these assets to your loved ones because you are concerned about their ability to handle a large inheritance.

However, there are opportunities to make mistakes when creating a living trust, including putting the wrong kinds of assets inside. Certain kinds of accounts should never wind up in a trust, even if they are the biggest part of your estate. This includes IRAs, tax deferred annuities, and assets inside your 401(k) plan.

Any other accounts that allow you to take tax free withdrawals for medical expenses, such as medical savings accounts and health savings accounts should also be excluded from a living trust. These transfers into a trust will be treated by the IRS as a distribution, meaning that you will have to pay income taxes on the entire amount moved through. Discussing your options for your retirement plans with an estate planning lawyer is a better option to consider and one that can be done by contacting an attorney today.

Need more help determining what to do next? Our Pasadena area estate planners can help.

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