Using a living trust in an estate plan requires thorough study

On Behalf of | Jul 13, 2022 | Estate Planning |

When you reside in Alabama, creating an estate plan is a crucial way to plan for the future. Forming one is critical if you want your wishes to be met. This action allows you to pass on assets to family members and reduce expenses.

Ensures property goes to specific beneficiaries

One of the primary benefits you’ll receive from going through the process of estate planning is the opportunity to ensure your property gets passed on to the specific beneficiaries you choose. Without this legal documentation, bickering between family members may occur.

Using a living trust when creating an estate plan

One of the tools you can use when creating an estate plan is a living trust. Assets placed in the trust won’t go through probate, which can be costly and time-consuming. A living trust may also hold up better than a will if someone comes forward to contest the distributions, saving your estate more expenses. However, it’s critical to understand what property should be put into a trust to avoid expensive mistakes. Here’s a list of assets that belong in a trust:

  • Primary home
  • Vacation property or homes
  • Stocks
  • Bonds
  • Mutual funds and other investments in non-retirement accounts

Some property should not go into a living trust

When creating an estate plan and adding a living trust, retirement accounts, such as an IRA or 401(k) plan, should not be included. Doing so will be costly as the IRS treats these transactions as a distribution, requiring an income tax payment. Medical savings accounts and health savings accounts should also be excluded. Making your trust a beneficiary of your retirement accounts might be the best move when you want to save money.

Creating an estate plan can be an excellent way to ensure your beneficiaries receive your assets. You may also want to speed up the process and save money using a living trust. Knowing some of the caveats when using this tool should steer you in the right direction during the estate planning process.