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What to Put in Your Living Trust

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When you create an "irrevocable trust" for your estate plan, then you have only just begun the process. An irrevocable trust, like a "revocable trust," is worthless until you transfer assets into it. However, you do not need to put all of your assets in the irrevocable trust. In some cases it is better to leave certain assets out of the irrevocable trust.

Recently, Market Watch listed some considerations about what assets to put in an irrevocable trust in "What you should know before placing assets in a trust."

The considerations include:

  1. Taxes – Assets in the irrevocable trust will be taxed differently than if you held them personally. Your irrevocable trust will not receive any of your personal tax deductions or credits.

  2. Rate of Return – An important consideration is whether you can get a better return for your investments by holding them in an irrevocable trust than if you held them personally. While inflation is low at the moment, you need to get a better return than the U.S. target inflation rate of 2%, which is often easier to do in an irrevocable trust.

  3. Usability – It does you little good to have assets if you cannot access them when you need them. Placing assets in an irrevocable trust can make it more difficult to spend them in an emergency.

  4. Safety – As always you need to make sure that the risk/reward ratio of your investment portfolio is appropriate for your age.

  5. Transfer Rules – It is important to understand the Medicaid transfer rules in your state if you are considering transferring assets to any trust and you might need long term care in the near future. Ask an elder law attorney if you are uncertain about these rules.

An irrevocable trust may have its benefits, but it must not be confused with a revocable trust. Contact an experienced estate planning attorney to learn more.

Reference: Market Watch (Feb. 25, 2016) "What you should know before placing assets in a trust."

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