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What Assets Should Not Be Placed in a Revocable Trust?

Attorney Thomas B. Burton answers the following question:

"What Assets Should Not Be Placed in a Revocable Trust?"

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Hello, I'm attorney Thomas Burton, and today's question is the following:

“What assets should not be placed in a revocable trust?”

Great question.

So to start with, a revocable trust is a great tool for what we call a ‘Will Substitute’. When I put a revocable trust plan together, the goal is to avoid probate and all your assets by having them flow through the trust.

Now, I should say all or almost all of your assets because there's a few certain assets you may not want to put into the trust currently while you are alive and those include qualified retirement plan accounts. Retirement accounts that are tax deferred such as a traditional IRA or a 401k or another type of plan at work where you don't pay tax on going in but you will have to pay tax when it comes out. You don't generally want to retitle those into the trust while you're alive because there's beneficial reasons to leave it in your name, so you don't incur any adverse tax consequences. However, when you pass away, if you have a surviving spouse, it's often a good idea to leave it directly to their surviving spouse, or if you don't talk with your lawyer about putting special provisions in your revocable living trust, to allow it to receive those retirement plan assets and then the trust can distribute them to your children or heirs or other beneficiaries. Sometimes those accounts you will leave directly to beneficiary. It depends on the amount of money in those accounts and you want to work with your lawyer to make it a comprehensive part of your plan. I will say that at the end of December 2019, Congress passed the secure act which changed the way a lot of these plans I looked at and so in general, it's a 10-year distribution rule for people. They have to withdraw the money and take the RMDs because Congress wants to tax that money coming out.

So there are ways and the trust can be a great vehicle to protect these assets especially for minors when you think of children under the age of majority, which is 18, in the state of Wisconsin, you can have those, you can name your revocable trust as the contingent beneficiary. So for example, let's say the married couple, you leave it to your spouse, is the primary and the beneficiary form and then you name the trusts, the contingent in case something happens to your spouse or both of you, the trust would hold the assets for your children, for the maximum period of time allowed by law and Congress may change the law. So in my trust, I use flexible language. But it allows the trust to either hold it as long as possible and then make the required distributions whenever they become required under current law.

So in general, all types of assets are good candidates for the revocable living trust, especially real estate, personal property, stocks, bonds, anything like that can be retitled into the name of the revocable living trust and it's a great way to avoid probate. But talk with your Attorney and Tax Advisor about tax advantage retirement account, because we want to take special steps to either leave those accounts to the trust as a contingent beneficiary upon death but we don't usually want to actually retitle them into the trust, while you are alive, whereas with your house, real estate or other assets, the best method is to retitle those assets into the name of the trust after you form and sign it.

So great question and thank you for asking.

© 2022 Burton Law LLC. All Rights Reserved. Transcript and captions provided for ease of access for the hearing impaired. For questions about this topic, or to suggest a topic for a future blog post, please contact the office.

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