Some New York residents set up a revocable living trust to help ensure the best interests of their beneficiaries and their assets. Living trusts are well known for keeping the assets out of probate court so that beneficiaries can have access to them in a timely manner. While you may think that you should put all of your assets in a revocable living trust, that’s not always a good idea. There are certain assets that should remain outside of these trusts.
Qualified retirement accounts
When it comes to qualified retirement accounts like IRAs, 403(b)s and 401(k)s, you need to be very mindful of transfer taxes. In the event that these types of retirement accounts are put in a revocable trust, they will trigger income tax when they are disbursed. For this type of estate planning, it’s best to use an accountant to disburse the funds in the retirement account to your heirs.
Another asset that you need to avoid putting into a living trust is your life insurance policy. If you name your trustee as the owner of your policy, this will trigger tax consequences for them. In simple terms, revocable trusts are not able to protect your life insurance from creditors in the event that you still have debts upon your passing.
While it might seem fairly simple to retitle your vehicle into the name of the revocable trust, this may not be the best option for you, depending on where you live. Some states look at putting a vehicle into the name of a trust as a transfer of title. This will require you to pay title transfer fees and taxes.
Sometimes a revocable trust is not the answer for some of your assets. Estate planning can be a very lengthy and confusing process. It’s always advisable to contact an attorney to help so that you are ensured that you’re not putting any sort of tax burden on those who are to receive your assets.