A trust is an estate planning tool that allows you to designate a third party known as a trustee to hold and oversee certain assets on behalf of your beneficiary. Done right, a trust can greatly expand your options when managing your assets. From avoiding probate to protecting your assets from certain estate taxes, there are many benefits that come with setting up a trust.
A trust can be used alongside the will to direct your wishes with respect to your assets when you pass on. However, it is important to understand that, just like a will, not all assets belong in a trust. Here are some of these assets.
Movable assets
Movable assets can be cumbersome to include in a living trust. And this is a practical problem rather than a legal one. Examples of such assets include cars, motorbikes, boats and other movable assets that depreciate over time. Having the registration and insurance in the trustee’s name can create confusion. Besides, some insurance providers are always adamant about insuring assets that are owned by trusts.
Life insurance
The proceeds of a life insurance policy are always released to the designated beneficiary upon the policy holder’s demise without having to go through probate. So if your main goal of setting up a trust is to avoid probate, then you do not have to bother about including your life insurance cover in a trust.
However, if the beneficiary of your policy is a minor, then you may want to take additional steps to appoint a third party to manage the money in the policy on behalf of your child. In this case, you may name your living trust as the beneficiary and specify in the trust document that the funds should be managed by a guardian until the child attains a certain age.
A trust is a useful estate planning tool. However, it is important to know the assets you can include in your living trust and those that you cannot.