Blog | Ball Morse Lowe

Overzealous Trust Funding

Written by Ball Morse Lowe | June 3, 2016

Revocable living trusts are great estate planning vehicles for avoiding probate. But a trust is only as good as the property funding that trust. Without proper funding, a deceased person’s property may end up in probate. That being said, a trust grantor (the person setting up the trust) should not be overzealous in funding her or his trust.

Some types of property either avoid probate or incur tax penalties when transferred into trusts. Although not exhaustive, below is a list of property that in some situations should not be owned by a trust.


 Ball Morse Lowe is helping you avoid overzealous trusting funding in this
 week’s legal brief.

Rental Properties
If feasible, most rental properties should be owned by an LLC or similar corporate structure. Owning rental properties outright as an individual can lead to unneeded risks of liability. Transferring rental properties to a trust exposes the trust to the same types of liability.

Retirement Accounts
Most retirement accounts such as 401(k)s, IRAs, and 403(b)s, transfer outside of probate with beneficiary designations. Transferring these retirement accounts to a trust will result in unnecessary transfer taxes. To avoid this, simply update beneficiary designations as life circumstances change. In some situations, trusts can be named as the beneficiary of retirement accounts.

Life Insurance
Life insurance policies transfer outside of probate. So, there is no need for a trust to own life insurance. This is especially the case because some policies cannot be easily transferred without new underwriting or costly fees. One notable exception to this rule is when estate taxes are in play.

 Life insurance policies are commonly included in a descendant’s estate for
 estate tax purposes. Basic estate planning can help alleviate some of
 these tax concerns.

 

Payable on Death Accounts
Most bank accounts can be setup to avoid probate by naming a beneficiary to whom the bank account transfers to upon death. However, there are not many downsides to having a trust own the bank account as there should not be tax consequences or liability issues with such a transfer.

Each revocable trust should be designed to accomplish certain goals. Defining these goals with a qualified attorney can help determine which accounts and properties to transfer to a trust.

Ball Morse Lowe law firm practices personal injury, family law, and estate planning. Our team prides themselves on handling your unique circumstances with care. Our experienced attorneys ensure your needs are met, whether it be for business, law, or life. Contact one of our offices in Oklahoma City, Norman, or Denver for your legal consultation today.

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