We often get asked during the estate planning process what you can put into a trust. Understanding this is extremely important because you want to take full advantage of your sophisticated planning tool.

What Should Go Into A Trust

Homestead Property

The Florida homestead exemption applies only for property owned by “natural persons.” Without diving into too much legalese, there was a decision by a bankruptcy court judge in a case called In re Bosonetto. In that case, the judge found that because the homestead in that case was held by a trust and not a “natural person”, the homestead protection did not apply.

On this basis, the court allowed a creditor to force the sale of the home in order to pay debts. This result is, of course, something to avoid as part of a complete Florida asset protection plan.

The good news is since Bosonetto, 5 Florida courts (2 of which were bankruptcy judges) have opted NOT to follow that case, and have expressly determined that property held in a revocable living trust is exempt from forced sale under Florida homestead laws.

1. Summarizing the pros and cons

1. It is often very advantageous to title a Florida homestead in a revocable trust due to the major benefit of avoiding the Florida probate administration process in favor of a much simpler Florida trust administration.

In addition, the flexibility of a revocable trust allows distribution planning options in the event of a special needs beneficiary in Florida OR if added protection is needed for IRA beneficiaries, estate planning in Florida for second marriages, and the list goes on.

2. Putting off probate

While joint title with right of survivorship or tenancy-by-the-entireties (husband and wife) property will pass to the surviving co-owner, you may only be putting off probate until the last co-owner dies.

Further, retitling the property could give friends and/or family an immediate interest in the property that can be rented, sold, or even worse used immediately!

Non-Homestead Property / Investment Properties

Bank Accounts

  • Checking – All bank accounts currently owned jointly or individually should be transferred into the Trust. Take your Certificate of Trust and the Bank Notification to your bank and they will change your signature cards. The checks you currently use will not change.
  • Savings – All savings accounts held jointly or individually should be changed into the name of the Trust.
  • CDs – Be careful, some treat retitling of the CD into the name of the trust as an early payout, in which case early withdrawal penalties could apply.

Brokerage Accounts / Stock Certificates

  • Brokerage Accounts – All Brokerage Accounts currently held jointly or individually should be transferred into the name of the Trust. Use the Broker Notification from your attorney along with the Certificate of Trust, and present these documents to your Broker. He/she will change the account title into the name of the Trust.
  • Stock Certificates – If you hold the Stock Certificate, you will need to contact the transfer agent where you purchased the certificate and request they send you the form(s) that they require to reissue the stock certificate in the name of the Trust.

Qualified Retirement Accounts

Qualified retirement accounts, including 401(k)s, 403(b)s, IRAs, and qualified annuities, shouldn’t reside within your revocable living trust. The reason is the transfer would be treated as a complete withdrawal of funds from your account.

Subsequently, 100 percent of the value would be subject to income tax in the year the transfer is made.

What you should do is change the primary (if single) or secondary (if married) beneficiary of your account to your trust.

  • It is best to notate the existence of these to ease transfer of benefits after death.
  • Most married couples name their spouse as beneficiary because 1) the money will be available to provide for the surviving spouse and 2) the spousal rollover option can provide for many more years of tax-deferred growth. (After you die, your spouse can “roll over” your tax-deferred account into his/her own IRA and name a new beneficiary, preferably someone much younger, as your children and/or grandchildren would be.)

Health Savings Accounts and Medical Savings Accounts

Health savings accounts (HSAs) and medical savings accounts (MSAs) are tax-exempt trusts or custodial accounts designed to pay  medical expenses that qualify. Counterintuitive thinking applies here.

As these accounts can’t be retitled in the name of your trust, ​instead, the trust should be designated as the primary or secondary beneficiary of these accounts.

Life Insurance

The owner of a life insurance policy can be changed to the trustee of the insured’s revocable living trust without suffering any income tax consequences.

In order for the proceeds to be protected from the beneficiaries creditors, an irrevocable life insurance trust would have to be established.

Motor Vehicles

In most instances, transfer of vehicles after death is accomplished easily and without involving probate. All that is usually needed is the title, the death certificate and the Will.

The Florida Department of Motor Vehicles will usually transfer title with just these documents (along with payment of a transfer fee).

  • In addition, titling your vehicles into the Trust can have a number of negative implications. For example, vehicles are one of the most likely reasons you might be sued–as a result of an accident. If your vehicle is owned by the Trust, then your Trust will be a party to the lawsuit. You would not want other people learning the details of your Trust through the litigation process.
  • Another reason not to title your vehicles in your Trust is insurance. Automobile insurers in Florida often tell clients that they can’t–or won’t–insure a vehicle in the name of a Trust.

Personal Property

The Finity Law transfers all personal property (property without title) into the trust.

This statement is signed by you at the time you execute the Trust documents, and it effectively transfers all of your personal property to your Trust without the necessity of identifying each separate item of personal property.

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