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How to access estate assets not held by a living trust

On June 27, 2016, Governor Brown signed SB833: legislation which reduces Medi-Cal Estate Recovery’s ability to seek reimbursement from the estate of a surviving spouse. In short, this means that you can now use a revocable living trust to protect your assets from being clawed back by Medi-Cal after you or your loved one passes away.

Currently, Medi-Cal Estate Recovery has the right to seek recovery for any benefits paid from assets in which the surviving spouse of recipient had an interest at the time of their death, including assets held in living trusts or in joint tenancy. While the formation of a revocable living trust, under the current law, was effective to avoid probate, it did not offer any protection against Medi-Cal’s ability to seek reimbursement from your assets for the amount of benefits Medi-Cal paid for the medical or long-term care costs they paid during your or your spouse’s life. This recovery mechanism was criticized for its devastating effect on families of recipients who were forced to sell a family home to pay for Medi-Cal benefits received by family members.

Under the new law, for decedents dying after January 1, 2017, assets held in a living trust would be immune from recovery. Under SB 833, Medi-Cal’s ability to seek reimbursement for amounts paid from a Medi-Cal recipient’s estate would be limited to assets which pass as part of the deceased Medi-Cal recipients “probate estate” – the assets outside a trust, in other words.

Assets that would typically be a part of a person’s probate estate and therefore, would be subject to reimbursement, are those which are either (1) held in the decedent’s name alone or (2) designated to pass pursuant to a decedent’s Last Will and Testament. Assets that would not typically require a probate and which will avoid the devastating Medi-Cal clawback, include assets held in a living trust and assets held in joint tenancy, as they pass to beneficiaries outside of probate.

Since assets held in a decedent’s revocable living trust will, as of January 1, 2017, avoid both probate and Medi-Cal recovery and, as a result, preserve your estate for your loved ones – it is now, more than ever, important to plan for your loved ones by establishing a revocable living trust.

Choosing whether to fund a trust with your assets is an important decision in the estate planning process. Since a trust is different from a will, many individuals need both. Here are three main reasons you may want to consider putting your assets in a trust.

Should I put my assets in a trust?

3 main reasons to consider putting assets in a revocable trust:

  1. Avoid probate
  2. Retain control over your assets
  3. Estate tax planning opportunities

What is a revocable living trust?

A revocable trust (also called a living trust) is “funded” during your lifetime and becomes irrevocable at your death. Funding a trust means retitling assets in the name of your trust. Unless you fund the trust, it doesn’t really serve a purpose. During your life, you can add, use, or remove assets in the trust as you would normally and there are no changes to the tax treatment of these assets.

How to access estate assets not held by a living trust

Using a revocable trust can help you avoid probate

Putting assets in a revocable trust allows you to avoid probate. Some assets, like a retirement account, will pass directly to beneficiaries. Assets that don’t pass directly to heirs (such as a bank account, brokerage account, home, etc.) will go through probate before being distributed according to your will (if you had one) or at the court’s discretion. Probate is an expensive, time-consuming process.

Trusts help ensure your assets are distributed the way you want

Again, without a trust you lose a lot of control about who-gets-what (and when) upon your death. A trust allows you to control everything for decades, assuming it does not conflict with the law. For example, instead of letting an 8-year-old inherit a rental property or investment account outright, you can include age-based milestones and other provisions to help ensure the assets aren’t squandered.

Taking advantage of estate tax planning opportunities with trusts

The federal estate tax exemption for married couples in 2020 is $23.16M, increasing to $23.4M in 2021 and portable between spouses. Some states, like Massachusetts, have their own estate tax and a much smaller exemption amount. The Massachusetts estate tax exemption is currently $1M and unlike the federal exemption, the amount isn’t portable. Using a credit shelter trust or marital trust after the first spouse dies helps preserve the exemption.

In this example, assets up to the exemption amount ($1M in this example for Massachusetts) would flow from a decedent’s living trust to a credit shelter trust and the remaining assets (if any) would flow to other trusts (a QTIP trust, family trust, etc.). If the surviving spouse dies later in the year, the credit shelter trust would generally bypass the taxable estate. This can reduce or eliminate estate tax at the state level altogether, if the remaining gross estate is $1M or less.

What types of assets can you put in a living trust?

Different types of assets can be put into trust during your life, though some are subject to state laws:

  • A home, vacation home, or rental property (read more about the pros and cons of putting a house in a trust)
  • Savings or checking accounts
  • A brokerage account with stocks, bonds, ETFs, and mutual funds
  • Ownership in a closely-held business
  • Cars

Other types of assets can only flow into a trust after death :

  • Retirement account, if the trust is a beneficiary
  • Life insurance, if the trust is a beneficiary

As with anything in estate planning, there are several important considerations before putting an asset in trust or naming your trust as a beneficiary, so you’ll need to discuss your situation with your estate planning attorney.

Other considerations before putting assets in a trust

  • What’s the cost of putting the asset in a trust? Is it worth the expected benefit?
  • What are the implications by retitling an asset in your own name into the name of a joint trust vs a revocable trust in your own name?
  • Is the goal probate avoidance or creditor/liability protection? A living trust can help with the former, but you may want to explore other ways to protect your assets such as an LLC, personal umbrella liability policy, or even an irrevocable trust
  • What are the future tax implications?
  • If married, do you and your spouse have similar legacy goals and beneficiaries? A revocable living trust helps ensure your wishes are kept with your assets, assets that remain after you and your spouse are gone, or in the event they remarry

Trusts can be an efficient way to accomplish your goals, but they’re not the solution for every problem. Work with an attorney in your area in conjunction with your financial advisor and CPA to develop a coordinated strategy that meets your needs.

Important disclosure: The material in this article is intended to provide generalized information only as to some of the financial planning considerations of revocable trusts and should not be misconstrued as the rendering of personalized legal or tax advice.

You've defeated your trust's purpose if you leave assets out

How to access estate assets not held by a living trust

Robert Daly / Caiaimage / Getty Images

Probate would most likely be required to transfer assets to the name of a living beneficiary if you personally own any property when you die that isn't included in your trust. Funding your revocable living trust is even more important than creating your trust in the first place.

It's useless, just an empty vessel, if you overlook this vital step, or if you acquire new assets over the years that you neglect to transfer into the trust's name, and this can prompt a variety of problems.

Assets that move directly to a named beneficiary, such as life insurance proceeds, retirement assets, or certain types of jointly-owned property, don’t require probate.

The Need for an Ancillary Probate

Ancillary probate involves two separate but simultaneous probate proceedings in two or more different states or jurisdictions for the same estate.  

Your heirs and beneficiaries might have to deal with two or more probate processes if you neglect to fund assets into your trust. Your loved ones will have to open probate both in your home state and in each additional state where you also own property if you own real estate in a separate state from that where you were living.

Property located in each jurisdiction must be probated according to that state's laws and rules, which can cause a great deal of confusion.

Unnecessary Estate Taxes

An AB trust is an estate-planning mechanism by which the first spouse to die establishes an "A" trust to provide for the survivor for life, and a "B" trust to provide for descendants.  

AB trusts that you might have established under your trust can’t be funded if all your accounts and property are owned as joint tenants with rights of survivorship, or as tenants by the entirety with your spouse. This can result in estate taxes that would not otherwise have been due.

Your beneficiaries won't be able to take advantage of important estate and income tax strategies or asset protection if you fail to update the beneficiary designations for your life insurance and retirement accounts to coincide with the terms of your trust before you die.

A Conservatorship for Minor Beneficiaries

Minors can't legally own property they inherit. The successor trustee of your trust would be authorized to manage it for them until they come of age—but only if you place those inheritances in the name of your trust.

Otherwise, an adult will have to go to court and ask to be appointed as your child's conservator so they can oversee this property on their behalf until the child reaches the age of majority.  

You Might Need a Conservator

You can name a successor trustee for your revocable trust to step in and manage it and your financial affairs for you if you become mentally incapacitated. But they can't manage assets that are owned in your individual name outside your trust. Your loved ones would have to establish a court-supervised conservatorship so they can manage your assets if a time comes when you can't do so yourself.

Create a Pour-Over Will

An easy remedy can avoid many of these complications in the event of your death. You can create a “pour-over” will when you create your trust, directing that any assets that have been inadvertently admitted from your trust should be directed into it at the time of your death. The executor you name in your pour-over will makes this transition of your property.  

These assets would still have to go through the probate process to get from your sole ownership into the ownership of your trust, but then they could be distributed and dealt with according to your trust's terms.

NOTE: State and local laws change frequently and the above information might not reflect the most recent changes. Please consult with an attorney or tax advisor for the most up-to-date advice. The information contained in this article is not legal or tax advice and it is not a substitute for legal or tax advice.

How to access estate assets not held by a living trust

If you’re thinking about setting up a living trust, you might think your job is finished after visiting your lawyer and signing the necessary documents. But there’s more to this story.

To give that newly minted trust its full power, you need to fund it. You need to decide which assets you’ll put in the trust and complete the transfers. But which assets belong there? And which ones are you better off leaving outside your trust? Here’s what you need to know.

WHY A LIVING TRUST

A living trust is legal structure that allows you to manage your assets while you’re alive and pass assets easily to beneficiaries when you die rather going through the courts.

Jessica Lubar, a tax lawyer and director of advanced planning at Northwestern Mutual, says there are several reasons for creating a living trust. Whether it is advantageous often depends on where you live. One of the primary reasons for having a living trust is that it bypasses probate , or a court process that validates your estate plan and directs the distribution of your assets. Lubar notes that probate can be a complex journey that requires significant time, money and supervision.

Estates that move through probate court automatically become part of the public record. But a trust lets you keep your finances, and the way you distribute them, private. Plus, a trust gives you far more control over how your assets are disseminated when you die. You get to decide who gets which assets, how much and when they get access to them. So, for instance, you can give some of your investments to your child when he turns 18 and the rest when he turns 30.

While a trust and a will both let you designate beneficiaries who will inherit your assets when you die, Lubar says that a living trust might provide lifetime benefits too. Having a trust allows you to choose a trustee to manage your assets if you’re ever incapacitated. This may avoid the need for having a financial power of attorney.

While you’re alive and well, you can simply name yourself as the trustee of your living trust. That way, you’ll retain full power over your assets with the peace of mind that you’ve got a backup plan in place.

HOW TO FUND A TRUST

A trust is simply the legal framework that dictates how you want your assets handled. But those rules apply only to assets held in the trust. “If there are assets that aren’t in the trust when you die, those assets will need to go through probate,” says Lubar.

Once you complete the process of creating the trust , the next important step is funding the trust. You’ll have to retitle each asset you want included in your trust, and, fortunately, the process is straightforward. Start by contacting the financial institution associated with a given asset. Ask about their procedure for changing the name on your asset from yours to the trust’s. A simple form is sometimes all that’s necessary, though some businesses may require additional information or a certificate of trust.

As the trustee of your own trust, you’re free to move assets into and out of the trust during your lifetime. Don’t worry, moving those assets around won’t trigger any tax events.

WHICH ASSETS BELONG IN A TRUST?

Assets that should be owned in the trust are any assets that would need to pass through probate if not in the trust and assets where the disposition is best done through the trust. In addition to assets in a trust, assets that pass pursuant to legal title (e.g., joint tenants with rights of survivorship) or by contract (e.g., a transfer on death provision) do not pass through probate. As long as the trust is designated as the beneficiary or trustee of such accounts, your assets will be disposed of the way that you want them to.

Lubar notes that plenty of financial accounts are perfect candidates for your trust holdings.

Liquid accounts: These include your savings and checking accounts at a bank or credit union

Traditional investments: Consider assets you own through a regular brokerage account but not those held in your retirement portfolios.

Real estate: Moving your home into a trust can save your heirs significant probate costs. “Generally, you need just a deed transferring ownership to the trust,” says Lubar. “If the house has a mortgage, check with the lender to determine whether their approval or consent is required to transfer the property.”

Personal property: There’s no title for most of the possessions in your home, but you can still move them to your trust. “It can be as basic as a schedule attached to the trust when it’s executed that lists the property that’s being transferred to it,” says Lubar.

Business interests: If you have at least partial ownership of a business, consider allocating that to your trust.

Intellectual property: This includes patents, published works and trademarks.

Money you’re owed: If a debt is owed to you, you can add that to your trust as well.

Safe deposit boxes: Be sure the trustee can obtain access to it without a problem.

WHICH ASSETS SHOULD YOU KEEP OUT OF A TRUST?

While a trust works beautifully for many assets you might own, it may not be the best fit for all of them. Before transferring any assets to the living trust, confirm with an attorney that the transfer doesn’t affect any liability protection that the asset might be entitled to based on how it’s owned (e.g., as tenants by entirety for spouses).

Here are a few assets you can keep out of your trust.

Retirement plans and accounts: IRAs, Roth IRAs , and 401(k) plans only belong to individuals — not to trusts. Lubar, however, says you can designate your trust as the beneficiary on those accounts. “That will ensure that the assets pass pursuant to the person’s wishes as laid out in the trust,” she says. Note that having a trust as a beneficiary of a retirement account may result in distributions from the trust occurring faster than if an individual were designated as the beneficiary of the account.

Tax-advantaged savings accounts: These include accounts like Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Dependent Care FSAs. As with retirement accounts, however, just list your trust as a beneficiary for these accounts.

Certificates of Deposit (CDs): You might be able to move CDs into trusts but check first with your financial institution. Retitling the CD could be considered an early withdrawal that subjects you to fees.

Life insurance: “There isn’t really a benefit to putting life insurance in living trust,” says Lubar. “Since the death benefit transfers by the beneficiary designation, there isn’t a probate process that’s applicable.” You’ll can still designate the trust as a beneficiary, however.

THE BOTTOM LINE

For many people, creating a trust is a great way to manage your assets while you’re healthy and ensure they’re taken care of as you intend. And, while plenty of your assets work beautifully in a trust, it’s not right for everything you own.

“At the end of the day,” says Lubar, “what’s important is that the individual’s assets go to whom they want them to go to and when they want them to. The trust is just one of the ‘hows’ for accomplishing that.”

Trusts must adhere to specific requirements to be valid. All trusts, including living trusts and irrevocable trusts, must have trust assets, i.e. property, a trustee and beneficiaries. In general, when a trust runs out of assets, the purpose of the trust is considered fulfilled and the trust may be terminated. Depending on the circumstances, the trust may need to be officially dissolved by obtaining court approval.

Trust Basics

A trust is an arrangement — created by a trust document — whereby a trust creator, also referred to as a “settlor,” transfers assets to a trustee. The trustee has a responsibility to manage, protect and distribute trust assets according to the terms of the trust document. A trust must have a trustee, assets and beneficiaries to be valid. The absence of assets, in particular, will render a trust arrangement impossible.

Trust Assets

Trust assets may include money, royalties, stocks, and other types of property interests. Such trust assets must be ascertainable when the trust is created. In other words, expectancy or anticipation of income or property is not enough. Trust assets include any income earned on the principal. When a trust’s income and principal are depleted, the trust is generally considered to have fulfilled its purpose.

Final Distributions

Final distributions of a trust may be made when the trust no longer has assets, has become too expensive to administer, or the trust’s termination date — as stated in the trust document — has arrived. Once final distributions are made to beneficiaries, a trust with a fixed duration may automatically terminate or be terminated with a court’s permission.

Terminating a Trust

Although state law varies — and the rules of trust termination vary depending on the type of trust — a trust with assets that are less than the amount it takes to administer the trust may require the beneficiaries’ consent and court approval before it may be terminated. Some states, such as Florida, allow a trustee to terminate a trust if its total value is less than $50,000 and he believes the value of trust assets are insufficient to continue administering the trust.

In California, a document called a small estate affidavit may be used to transfer an estate’s assets to the proper beneficiaries without having to open a formal probate proceeding with the court. To use a small estate affidavit, the estate must meet the following basic legal requirements:

The basic requirements to use a small estate affidavit are the estate’s probate assets must not exceed $150,000.00 in value. The decedent’s personal and real property are included in the value of the estate although small estate affidavits are generally used to transfer real property such as bank accounts, stocks, and mutual funds to the decedent’s heirs.

The value of the estate includes all real (ex. bank accounts and financial assets in the name of the decedent) and personal property (for example furniture, jewelry, household items owned by the decedent) and all life insurance or retirement benefits that will be paid to the estate (but not any insurance or retirement benefits with a named beneficiary).

The value of the estate DOES NOT include cars, boats or mobile homes owned by the decedent; real property outside of California; property held in trust, including a living trust; real or personal property that the decedent jointly owned with someone else; “pay on death” property that passed directly to the surviving spouse or domestic partner at the decedent’s death; life insurance, death benefits or other assets not subject to probate that pass directly to the beneficiaries; unpaid salary of the decedent up to $5,000; and the debts or mortgages of the person who died.

A small estate affidavit may only be used if:

  • The affidavit is submitted by an heir of the decedent, guardian of the decedent’s estate, or executor named in the decedent’s will;
  • At least 40 days must have passed from the decedent’s date of death before a small estate affidavit can be used;
  • A small estate affidavit cannot be used if there are pending probate proceedings for the estate (meaning someone has filed a petition with the probate court in the California county where the decedent lived or owned property); and

The form and contents of the affidavit must conform to the requirements set forth in Section 13101 of the California Probate Code. Note that many financial institutions such as banks and brokerage companies have their own small estate affidavit forms, often available online.

After the form is completed and signed as required under the California Probate Code, present it to the bank or holder of the property along with a certified copy of the decedent’s death certificate and any other requested documents in exchange for the property. Small estate affidavits may also be used to transfer title to cars owned by the decedent by filing the affidavit with the California Secretary of State.

Estates with Both Real and Personal Property

Small estate affidavits are typically used to transfer the decedent’s personal property. In order to use a small estate affidavit for an estate that also includes real property, California law requires an inventory and appraisal of the real property to be attached to the affidavit. The California State Controller’s Office maintains a list of accepted appraisers.

Why Not Probate?

Under California law, formal probate proceedings can be opened for any estate regardless of its value. Although using a small estate affidavit is typically less expensive and time consuming than formal probate, circumstances may dictate that a supervised administration of the estate by the probate court is needed. Such circumstances include an estate likely to involve a contentious dispute among beneficiaries or an estate that must deal with creditor claims or assets held by foreign institutions. Further, since assets held in a trust avoid probate, small estate affidavits are often used to transfer “stray” assets not titled in the name of a decedent’s trust such as small checking and savings accounts.

Do I Need A Lawyer If I Use A Small Estate Affidavit?

Our office has experience with small estate affidavits and can help expedite the transfer process. You may be able to transfer the decedent’s assets without a lawyer so long as you are an heir of the decedent or the executor or guardian of the decedent’s estate, the estate qualified for a small estate affidavit, and the estate contains simple financial assets held at institutions used to using small estate affidavits. However, an attorney’s help may be necessary to determine whether or not the estate requires probate or to deal with unique assets or uncooperative financial institutions.

Living trusts can be excellent estate planning tools, but they aren't necessarily going to protect your assets.

by Michelle Kaminsky, Esq.
updated October 20, 2020 · 3 min read

While there are several good reasons to consider a revocable living trust for your estate plan — avoiding probate, for example —keeping your assets safe from creditors is not one of them.

To understand why, it’s helpful to discuss what a revocable trust is and what it does, as well as how it differs from an irrevocable living trust—a legal instrument that actually may help you protect assets from creditors.

Aside from an irrevocable trust, there are other ways to keep creditors away from your stuff, so if you’re concerned with asset protection, read on.

What Is a Revocable Trust?

A revocable trust, sometimes called a living trust, holds the assets of a trust creator (called a “grantor,” “settlor,” or “trustor”) during his or her lifetime. The trustor is named as trustee.

Upon the grantor’s death, the “successor trustee,” who had been chosen by the trustor, facilitates the distribution of assets to the trustor’s chosen beneficiaries according to the provisions of the trust documents. All of this happens outside the probate process.

Indeed, many people turn to trusts to avoid probate, the court-supervised process of distributing a decedent’s estate, which can become costly and time-consuming.

Generally trust documents do not become part of the public record, which means your affairs stay private, as opposed to what happens with a last will and testament, which goes on file for anyone to search.

Another benefit of a living trust is that the successor trustee can step in to handle the affairs of the trustor should the trustor become incapacitated, which, again, would happen without getting a court involved.

Two important notes about a revocable living trust, however: (1) The trustor is still legally considered the owner of the assets within the trust; and (2) the terms of the trust can be changed or the trust canceled by the trustor at any time.

These characteristics make the assets within the trust susceptible to collection by creditors because the trustor, as far as the law is concerned, still owns and has full control over the assets. As a result, a creditor could go after the trust, seek its termination, and gain access to assets within it.

So, to be absolutely clear: A revocable living trust does not protect assets from creditors.

What Is an Irrevocable Trust?

An irrevocable trust, on the other hand, may protect assets from creditors. In fact, you may see the term “asset protection trust” used to describe such a trust.

What’s the difference? With an irrevocable trust, the assets that fund the trust become the property of the trust, and the terms of the trust direct that the trustor no longer controls the assets. Also, an irrevocable trust’s terms cannot be changed and the trust cannot be canceled without the approval of the grantor and the beneficiaries, or a court order.

Because the assets within the trust are no longer the property of the trustor, a creditor cannot come after them to satisfy debts of the trustor.

Still, it is crucial to know your state law regarding irrevocable trusts to understand exactly how well your assets are protected from creditors. Keep in mind that a court is within its power to find a transfer of assets to a trust to be fraudulent if it is done with the intent to defraud creditors. Not only could such a finding expose the trust assets to liability, but also it could mean heavy legal penalties for the trustor.

Asset Protection Strategies

If you are concerned with asset protection, there are several different ways to accomplish this aside from putting your property into a trust that you will no longer have control over.

Depending on your state law, certain assets may already be protected from creditors, so you may choose to put your money into such assets. Many states, for instance, have a “homestead exemption” for the main home of an individual, which cannot be touched in bankruptcy. Most retirement accounts and pension plan funds are also usually off-limits.

Liability insurance is one of the most common ways to protect against potential lawsuits and creditors. Another option may be to create a separate business entity such as a limited liability company (LLC) or corporation to shield personal assets from liability.

Make no mistake: The right kind of asset protection can make a big difference in how much your creditors could collect from you, so if you have any concerns about whether you’re going about things correctly, you should contact an experienced professional for guidance.

If you have been named executor of a will or trustee of a trust, these guidelines can help you understand what’s expected of you in the process.

The executor (sometimes referred to as executrix for females) is responsible for managing the affairs of and settling the estate, including initiating court procedures and filing the deceased’s final tax returns.

The trustee acts as the legal owner of trust assets, and is responsible for handling any of the assets held in trust, tax filings for the trust, and distributing the assets according to the terms of the trust.

Both roles involve duties that are legally required. If you don’t feel you can carry them out effectively, you may be able to hire a professional to help carry out the duties or step down and allow someone else to assume the tasks.

Each state has different rules and each situation is unique, so you should always consult with an attorney or tax advisor.

Executor guidelines

Trustee guidelines

Executor guidelines

Executor guidelines

If you have been named executor of a will, these guidelines may help you understand what’s expected of you. You can also use them to determine if you would rather not serve as executor.

If you determine you would rather not act as the executor, the will may name an alternative or an attorney can help you petition the courts to have another executor appointed if necessary.

Generally, the executor of an estate may be expected to perform certain types of duties, including:

  • Represent the estate for legal purposes: Hire an estate attorney, petition the court, and attend court proceedings.
  • Manage the affairs and expenses of the estate, including paying debts and expenses and collecting receivables, planning for cash and liquidity needs, having assets appraised or revalued if necessary, and, in some states, filing a probate inventory.
  • Contact government institutions as needed, to obtain information such as an Employer Identification Number for the estate from the IRS.
  • Issue notifications, such as public notice of probate in newspapers and statutory notice to beneficiaries to inform them of their interest in the estate.
  • Attend to tax-related tasks, such as filing tax returns and a closing letter with the state’s tax bureau.
  • Distribute assets to the beneficiaries.

Trustee guidelines

Trustee guidelines

If you’ve been named to serve as trustee, these guidelines provide an overview of some of the duties you would generally be expected to perform.

You can also use these guidelines to determine if you don’t have the skill, will, or time to administer the trust properly. Acting as a trustee is complex and time-consuming and you may be personally liable for the actions you take in the role. Additionally, it may be a good idea to consider family relationships and whether you will be able to make objective decisions and take actions in the best interest of the trust and beneficiaries.

There are options available to you as a trustee: You may be able to bring in a corporate trustee, like Fidelity,* to assist you in carrying out your duties. Ask a professional to help you understand your options and decide how to best proceed.

For information on how Fidelity may be able to help, see Personal Trust Services.*

If you determine that you would rather not be a trustee, review the successor trustee language in the trust document to determine if a successor is already named or what is required to appoint one.

Trustees have many responsibilities, which include at least:

  • Confirming key elements upon assuming the role of trustee: Ensure the assets are safe and under your control, that you understand the terms of the trust and who the beneficiaries are, and that all past account records are in order.
  • Investing the trust assets (if applicable) in such a way as to make sure the assets are preserved and productive for current and future beneficiaries.
  • Administering the trust according to its terms, including distributing trust assets to the beneficiaries, according to the trust agreement.
  • Making any decisions that arise according to the provisions of the trust; this may include discretion over when beneficiaries may or may not receive payments.
  • Preparing any records, statements, and tax returns as needed; also make any tax decisions relevant to the trust and keep all records on file.
  • Communicating regularly with beneficiaries, including issuing statements of accounts and tax reports.
  • Finding answers to any questions you and the beneficiaries may have concerning the trust.

For more details on the duties of a trustee, see Why naming the right trustee is critical, in Fidelity Viewpoints ® .

A revocable living trust is a legal document that names beneficiaries, creates trustees to act in your interest, and dictates how you'd like your assets divided if you're incapacitated or otherwise unable to make decisions.

Living trusts keep your assets out of probate court if you pass away, because the trust technically owns everything. The person you name as the trustee takes over your assets and acts according to the wishes you laid out in the trust.

However, not all of your assets can or should go into a living trust. Here are some items that you shouldn’t include in a living trust. Everyone’s financial situations and circumstances are different—make sure you talk with your estate planner to ensure that you include assets that you can legally leave to your beneficiaries.

Qualified Retirement Accounts

How to access estate assets not held by a living trust

You can retitle qualified retirement accounts, such as 401(k)s, 403(b)s, IRAs, or qualified annuities to the name of the trust. However, this triggers income taxes on the entire amount in the year the transfer takes place.

If you want to use your trust to pass on and distribute your retirement funds, you can name the trust as your account's beneficiary and have the trust worded to structure the distributions among your heirs.

Health Savings Accounts and Medical Savings Accounts

Health savings accounts (HSAs) and medical savings accounts (MSAs) are tax-exempt trusts or custodial accounts designed to pay qualified medical expenses.

Your HSA or MSA funds may be subject to taxes after transferring them to the fund.

You can't retitle these accounts in the name of your trust. ​If you feel that you have to place your HSA or MSA into your trust, the trust should be designated as the primary or secondary beneficiary of these accounts.  

Uniform Transfers or Uniform Gifts to Minors

Uniform Transfers to Minor Accounts (UTMAs) or Uniform Gifts to Minor Accounts (UGMAs) are established to benefit minor children. The child named in the account is considered the sole owner of the account, rather than the person who established it or any custodian named.  

In this case, a successor custodian (and maybe a third) should be designated. This keeps the trust from being sent back to probate court if the primary custodian dies before the minor reaches adulthood.

Life Insurance

You could change your life insurance policy’s ownership to be the trustee named in your trust without triggering any tax consequences. You could also assign your revocable trust as your life insurance beneficiary. However, creditors can access these funds. Revocable trusts are not able to protect assets from creditors if you die with debts.

If you have a life insurance policy, it is best to establish beneficiaries using the policy rather than retitle it to a revocable trust. If you feel that you must place the funds from your life insurance policy into a trust, check with your estate planning attorney before doing so.

Motor Vehicles

Generally speaking, motor vehicles can be retitled into your trust—cars, trucks, motorcycles, boats, scooters, and even airplanes. However, some states maintain that this is a transfer of title, because the trust and the person are legal entities. They might charge title-transfer fees and taxes for issuing a new title in the name of the living trust.

Check with your estate planning attorney to understand how to avoid probate of your vehicles in your state.

If this applies in your state, then you may want to purchase your vehicle in the name of the trust. In some states, probate is not necessary to transfer ownership of a vehicle after the owner dies. Other states allow vehicle owners to designate a beneficiary.