The Worst Assets To Leave In A Living Trust If You Want Your Kids To Avoid Probate

While planning their estate, a person might decide to create a living trust, which differs from a will. This legal document describes how to distribute assets after the person dies while allowing that person to maintain control over those assets while living. This may sound just like a will, but this structure can provide numerous benefits to beneficiaries. For example, after a person dies, assets in a living trust can get directly distributed to beneficiaries while allowing them to avoid the potentially months- or years-long probate process. Additionally, probate is pretty expensive because it has the added cost of fees for attorneys and courts that can often equal 4% to 7% of the estate. There are, of course, costs associated with setting up a living trust, which often range from $400 to $4,000, but the benefits of the trust could generally outweigh those costs. And while beneficiaries usually don't pay taxes on inheritance unless the estate is quite large, there are also potential tax benefits that come with setting up a trust.

That said, there are still assets you may want to hold off on putting in a living trust. This includes non-probate property — such as payable-on-death savings accounts, life insurance policies, and retirement benefits — as it already gets paid directly to beneficiaries without needing to go through the probate procedure. Meanwhile, leaving savings accounts, cars, and low-value property in a living trust comes with a whole other set of complications.

Even when assets don't fall into the non-probate category, attorneys may recommend against placing certain assets in a living trust because they can seriously complicate matters. This can include a checking account because that can add unnecessary layers of complexity to routine transactions, such as paying bills, while the trust-making person is alive. Instead, an attorney might recommend placing those funds into a payable-on-death checking account or giving a beneficiary joint ownership over the account for a smoother transition post-death. Vehicles still being driven are another asset you generally want to avoid putting in a trust. That's because accidents involving a vehicle being held in a trust could lead to challenging lawsuits. Instead, the estate-planning client could talk to an attorney or the automobile title company about a payable-on-death title that allows the vehicles to go directly to a beneficiary. Items of relatively low value typically don't go into a trust, either, such as furniture, household goods, and clothing. 

Being an executor or trustee can be a lot of responsibility. Luckily, when someone knows they're listed as one in a will or living trust, they can take steps to prepare for being an executor or trustee. This could include talking to the person who made the documents to gain clarity over their financial situation, assets, and wishes.