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What you might not want to include in a revocable trust

On Behalf of | Apr 19, 2021 | Estate law |

A revocable living trust can be an effective tool for managing your Connecticut estate. However, there are certain items that may not be worth including in such a trust. Those assets include life insurance policies, ownership rights to a vehicle and qualified retirement plans.

Why you shouldn’t put a life insurance policy into a revocable trust

Generally speaking, you can name a trust as the beneficiary of a life insurance policy without incurring a tax bill. However, it may be possible for creditors to seize any funds related to such a policy. This is because you still retain a level of control over this asset even if it is held outside of your estate.

Why qualified retirement plans shouldn’t go in a revocable trust

Titling a 401(k), 403(b) or other qualified retirement account in your trust’s name will likely trigger a taxable event. In many cases, it’s in your best interest to simply name the trust as the beneficiary of the account. The beneficiary designation document itself can be used to determine how payments are then disbursed to your intended heirs.

The pitfalls of titling a car in a trust’s name

Depending on where the transaction takes place, transferring ownership of a vehicle to a trust may result in paying a state transfer tax, sales tax and other fees. If possible, you may want to use a beneficiary designation to determine who gets a car after you pass. An estate planning attorney may be able to help you create a beneficiary designation that conforms to state law. He or she may also be able to review any existing beneficiary designation to ensure that it reflects your true intent.

Although you can title most assets in the name of a trust, it isn’t always in your best interest to do so. Ideally, you’ll talk to a legal adviser if you have any questions about the potential consequences of using this type of estate planning tool to hold property outside of your estate.