Trusts are legal agreements between three parties (the trustee, the grantor/creator of the trust, and the beneficiary). Oftentimes, for living revocable trusts, the trustee, grantor, and beneficiary are one in the same during that person’s lifetime, and only after that person dies will the roles shift or fragment among different persons (for example, you could have your sibling become the trustee and your children become the beneficiaries if/when something happens to you).

It’s important to understand the framework of your trust in order to better understand what assets should go into the trust during your life vs. after your life - or whether certain assets may never need to go into your trust at all.

The trust can then act as a bucket or holder of those assets to:

Make sure the right people receive the right assets at the right time
Minimize or eliminate estate taxes
Ensure privacy of succession of assets
Protect assets from creditors, bankruptcy, divorce, etc.

What goes into a standard revocable living trust?

For a standard revocable living trust, the primary asset transferred to the trust is a person’s real estate. This generally includes their primary residence, but may also include vacation homes or investment properties. Depending on which state you live in, it may make more sense to put an investment property in an LLC and then assign that business interest to the trust - but, either way, the real estate is ultimately controlled by the trustee of the trust for the benefit of the current beneficiaries.

Similarly, if you own other LLCs, Partnerships, or S Corps that are non-real estate related then you may assign those interests to the trust as well so long as it doesn’t conflict with your operating agreement.

For financial accounts, you may or may not need to title the accounts directly in the name of the trust while you are living depending on your type of trust and your intentions.

For example, for married couples with a joint trust (meaning a single trust with two grantors named on it) they may decide it’s easier to simply update the pay on death “POD” or transfer on death “TOD” designations on their bank accounts and investment accounts to name their trust as the death beneficiary.

The reason many clients prefer to update the death beneficiary designations on their accounts, rather than re-titling the accounts into the name of the trust is because for most bank/financial institutions, they may require new account numbers, logins, checks, etc. for the re-titling. Whereas with updating the POD/TOD, none of that additional hassle is needed. Instead, the statements may just show a POD/TOD designation after your names on the financial statements going forward.

So, from an administrative standpoint, it is generally much easier to do a beneficiary designation update, rather than re-titling an account into the name of your trust.

But, there are a few scenarios where you may have little to no choice on the matter. For example, if you have an irrevocable trust and the intention is to protect the assets held in that trust, then you would need to actually re-title the account in order to make sure such an account is protected and governed under the terms of the trust. I’ve also heard stories of certain banks not allowing you to update the death beneficiary to be a trust. I personally think that this is a simple miscommunication because such restriction make absolutely no sense to me - nonetheless, I’ve had clients claim that their bank or custodian (for investment accounts) refused to name the trust as a death beneficiary. Once again, this refusal is probably based out of ignorance rather than law/regulation, and I’ve found that getting a manager or in-house legal counsel involved often pushes it though (although an inconvenience). Regardless, if push comes to shove, and if your children are all minor beneficiaries, then you may be forced to do an account re-title in that scenario.

But what about retirement accounts?

Retirement accounts are different from checking, savings, and taxable brokerage/investment accounts because of the tax laws surrounding them. These retirement accounts may also be known as “qualified” accounts to indicate their preferential tax status.

For retirement accounts, I typically recommend married couples name each other first as their primaries and their adult children as the secondaries (assuming that is who they want as the beneficiaries). Only if the account’s beneficiary or contingent beneficiary is a non-spouse or non-adult child would I recommend naming the trust because it is oftentimes easier to name a specific individual with respect to retirement accounts rather than a trust due to the complex regulations surrounding the trust as a title holder of an inherited retirement account. (On a side note: our trusts are designed to meet such regulatory requirements, but it still may require additional paperwork for the successor trustee to deal with).

For more information on retirement accounts in particular, you may want to check out a prior article I’ve written called: Should I name my trust as the beneficiary of my retirement accounts?

What about life insurance?

This gets more into your estate tax strategy because you may or may not want life insurance includable in your gross estate (depending on your expected net worth and domicile at time of death).

The estate tax issue with life insurance often confuses people because they are often told that life insurance proceeds are “tax free”. This is half true - life insurance proceeds are tax free from income taxes, but are not tax free from estate taxes if you are over a state or federal threshold.

To get around this, some clients will design a specific type of trust known as an “irrevocable life insurance trust” or “ILIT” so the proceeds from the policy are never countable for purposes of their estate taxes. If this applies to you, then you would want the life insurance policy owned by the trust (not the by the individual insured person’s life) and you would want the death beneficiary to also be the trust.

Another important note: if you are putting an existing policy into an ILIT, it takes three years to avoid the clawback, but if you are purchasing a life insurance policy as trustee of the trust, then there is no clawback if you die within 3 years of purchasing that policy - so, if you are doing an ILIT and don’t already have a life insurance policy, then make sure your trustee buys it in the name of your trust.

If you are not dealing with an ILIT, then you can generally name the trust as the death beneficiary (similar to how you would with the other financial accounts mentioned above) and that would be fine.

What about my “stuff”? Like my cars, boats, and other tangible property in or around my house?

Most of my standard revocable living trusts have an assignment of “tangible personal property” meaning all the sentimental items, furniture, artwork, collectibles, jewelry and so on, would go into your revocable living trust to ensure nothing gets caught up in probate.

However, with respect to things that are registered with the state, like your vehicles and/or boats, etc. you would generally not put that in your trust in Massachusetts. The reason being (I’ve been told) is that in Massachusetts, insurers may consider the trust to be a commercial entity for insurance purposes (even though it’s not a business) and therefore would charge you commercial rates on your vehicles. Since commercial rates are often higher than personal rates, I typically advise my clients in Massachusetts to first check with their insurance provider to see if they will or will not be charged such rates on their vehicle if put into the trust.

For most of my clients, this results in them continuing to own their vehicles in their names individually (or jointly with their spouse). In the event that a person dies owning a vehicle in their own name in Massachusetts, you are allowed to either do a surviving spousal affidavit (which is an easy way to transfer the car to the surviving spouse) or you can do something called a voluntary administration statement (assuming the vehicle and less than 25k in assets is the only thing going through probate at the time of a person’s death).

Everything else is either already in trust or transferred to trust by operation of law at a person’s death.