What Property Should You Put in Your Living Trust?

After you set up a living trust to avoid probate proceedings, you still have a big task ahead of you: deciding which assets to add to it. Your living trust can control only the property you transfer into it (a step lawyers call "funding" your trust), so it’s important to understand what kinds of property to transfer (and not transfer) into your trust.

Assets You Can Include in Your Living Trust

When thinking about the property you want to hold in your living trust, consider including:

• real estate such as homes or land
• valuable personal property (jewelry, antiques, furs, or high-end furniture)
• ownership interests in small businesses
• investment accounts (stocks, bonds, and other securities held with brokers)
• bank accounts and money market funds
• intellectual property (patents or copyrights)
• gold, silver, or other precious metals
• fine art pieces, and
• collections of value (rare stamps, coins, or similar items).

To avoid probate, you don’t have to put all your assets into the trust. For some property, such as bank or investment accounts, you might want to use other probate-avoidance methods.

Real Estate

For many people, real estate—including their home, condominium, or land—is their most valuable asset. A variety of real estate types can be transferred into your trust, such as:

• your main residence
• vacation or second homes
• rental or investment properties
• undeveloped or raw land, and
• commercial or business properties.

A living trust allows these assets to pass to your beneficiaries outside of probate, so that your beneficiaries receive the property faster and with fewer court costs. The advantage is even greater if you own property in multiple states because it will keep your estate from needing separate probate processes in each location.

That said, in some situations where property is co-owned, using a living trust might not be ideal. If you and another person co-own property, you should consider how you hold title before deciding whether to transfer that property into your trust.

Tenancy in Common

When you hold property as tenants in common, each owner has a distinct share. You can leave your share to anyone you wish, but unless you use a living trust or another probate-avoidance tool, your interest will probably pass through probate after your death.

Joint Tenancy

When you own property as joint tenants, each person holds an equal share. If one joint tenant dies, their interest automatically passes to the surviving co-owners without the need for probate. For most people, this accomplishes the goal of probate avoidance for the first joint tenant’s death, so you don’t need to transfer joint tenancy property into a living trust for this purpose.

However, joint tenancy doesn’t avoid probate if all joint tenants die at the same time, because there’s no surviving owner to inherit the property. In that rare circumstance, each owner’s share passes according to their will or (if there is no will) state intestacy laws.

To plan for the unlikely scenario where all joint tenants die simultaneously, you have a couple of options:

• You can use a will to name a backup beneficiary for your share, though that share will likely go through probate.
• You can transfer the property to a living trust, allowing each owner to name alternate beneficiaries and avoiding probate even in the event of simultaneous death.

Another advantage of using a trust is flexibility: If you want your share to go to someone other than the surviving joint tenant(s), placing the property in a trust allows you to do so. Transferring joint tenancy property into a trust dissolves the joint tenancy, letting you choose any beneficiary for your interest.

Tenancy by the Entirety

Some married couples or registered domestic partners own property as “tenants by the entirety,” a type of co-ownership available in some states. This form of ownership is like joint tenancy: When one spouse or partner dies, the survivor automatically inherits the property, and probate is avoided for the first death. Also, as with joint tenancy, probate will likely be required if both owners die simultaneously. If this scenario concerns you, consider the same solutions as above: a backup will or a living trust.

Community Property

For spouses or registered partners in community property states, the options for avoiding probate depend on the state:

• In Alaska, Arizona, California, Nevada, or Wisconsin, you might be able to add a right of survivorship to your community property, letting the surviving spouse automatically inherit the property outside of probate. (In Alaska, this applies only if both spouses sign an agreement to create community property.)
• In California, even without a right of survivorship, the surviving spouse can usually claim real estate with a simple affidavit or request a Spousal Property Order from the court for other assets.
• Idaho allows a streamlined probate process when the surviving spouse is the sole beneficiary, with the court issuing an order transferring assets.
• In New Mexico, if a deceased spouse’s estate qualifies as a small estate and no other probate is required, the surviving spouse can claim ownership of a community property home by filing an affidavit after a six-month waiting period, provided that all debts and taxes have been paid.
• In Washington, community property goes through probate like other assets.

No matter where you live, once both spouses have died, community property will require some form of probate unless you use a living trust or another method to avoid it. Similarly, if both spouses die at the same time, probate can be avoided only by transferring the property to a trust, with each spouse naming the other as an alternate beneficiary.

Co-Op Apartments

If you own shares in a co-op, you might want to transfer those shares into your living trust. However, not all co-op corporations permit shares to be held by a trustee, so review the co-op’s rules, governing documents, or bylaws to find out if such a transfer is allowed. If your co-op doesn’t allow this arrangement, talk to the co-op board or discuss the situation with an estate planning lawyer to see if you have other options.

Another Way to Avoid Probate for Real Estate: Transfer on Death Deeds

If you’re mainly concerned about keeping real estate out of probate and don’t have many other assets that would need a court proceeding, you might use a transfer-on-death (TOD) deed instead of a living trust. A TOD deed lets you name a beneficiary who will inherit the property when you die, while you keep full ownership and control during your lifetime. Many states allow these deeds, but not all, so check your state’s law and local recording rules. You can have a lawyer prepare the deed or, where available, use reputable estate planning software or forms to make one yourself.

Small Business Interests

Probate can seriously disrupt a small business due to delays, costs, and court involvement. Placing your business interests in a living trust can make it easier for your chosen successors to take over with as little disruption as possible after your death.

However, if you want to control your business in the long term, a standard revocable living trust might not be enough. You’ll want to consult an estate planning attorney about creating a specialized trust with custom provisions.

Otherwise, considerations vary depending on your business structure:

Sole Proprietorships

If you operate as a sole proprietor, you can transfer business property—including assets and the business name—to your living trust. This helps preserve goodwill and continuity.

Partnerships

Transferring your partnership interest to a trust is usually possible, but check your partnership agreement. Some require the interest to be offered to other partners after your death, but this typically doesn’t prevent putting your share in trust. Rarely do agreements prohibit trust ownership; if so, seek legal advice before moving ahead.

Corporations

If you own all shares in a corporation, you can generally transfer them to your living trust without issue. For closely held corporations, review the bylaws, articles of incorporation, and any shareholder agreements for restrictions. Some agreements give surviving shareholders or the corporation a right to purchase shares from your beneficiaries. While this doesn’t prevent the transfer, your beneficiaries might have to sell the shares after inheriting them.

Limited Liability Companies (LLCs)

To place an LLC interest in your trust, you might need approval from the other members, depending on your operating agreement. Usually, this consent is required so the other members know that, as trustee of your living trust, you will continue to have authority to make decisions affecting the company. In some cases, you might be able to transfer only your financial interest to the trust while retaining the voting rights in your own name.

Bank Accounts

You can transfer your bank accounts into a living trust, but it’s often not necessary. Most financial institutions allow you to name a payable-on-death (POD) beneficiary who will receive the funds directly when you die, keeping the account out of probate. POD accounts are particularly practical for personal checking accounts, which can be tricky to use if owned by a trust.

Many financial institutions also allow you to name both primary and alternate beneficiaries for POD accounts. However, options can vary, so it’s important to check with your bank or credit union to confirm their beneficiary designation process.

Stocks and Brokerage Accounts

If you actively trade stocks, managing those transactions as trustee of your own living trust can be cumbersome. A practical alternative is to open a brokerage account in your name as trustee of your living trust. This way, all stocks, bonds, and other securities in the account are automatically held in trust. After your death, the entire account can be distributed to a single beneficiary in accordance with your trust instructions. If you want to leave shares to multiple beneficiaries, you can either set up separate brokerage accounts for each person or specify in your trust that several people will share ownership of the same account.

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Cash

Many people wish to leave specific cash gifts (say $10,000) to a friend, relative, or charity. However, you can’t simply list “$10,000 cash” as an asset in your trust, since a trust can’t directly own unallocated cash.

To properly include a cash gift, transfer the funds to a specific account (such as a savings or money market account) held in your name as trustee. In your trust, you can then name the intended recipient as the beneficiary of that account. For example, to leave $10,000 to your niece Vanessa, open an account in the trust’s name with that amount and specify in the trust that Vanessa will inherit the funds.

If you prefer not to open a separate account for a small cash gift, consider alternatives such as purchasing a savings bond for the beneficiary or dividing a single larger account among multiple recipients.

Valuable Personal Property

Other personal property—from jewelry and art to airplanes—can also be held in your trust. Common high-value assets to consider transferring include:

• jewelry, artwork, and collections
• antiques and precious metals
• luxury vehicles or classic cars

For everyday belongings or items of modest value, it’s typical for trusts to contain a catch-all provision that transfers “all my personal property,” or to reference a separate list (personal property memorandum) detailing specific gifts.

Additionally, if you own a car or boat, many states now permit transfer-on-death (TOD) registration for vehicles and vessels. This lets you name a beneficiary who will automatically inherit the vehicle or boat after your death, without the need for probate.

Assets Not to Include in Your Living Trust

While living trusts are a great tool for many types of property, some assets are better handled outside of your trust for practical reasons.

Everyday Vehicles

It’s best not to transfer cars or other vehicles you regularly use into your living trust. Registering and insuring vehicles in the trust’s name can be confusing, and some insurers might not cooperate. However, if you own valuable classic cars, antique vehicles, or a mobile home that’s classified as real estate in your state, you might consider including them in your trust; just be sure your insurance company allows it.

Frequently Bought or Sold Property

There’s little benefit to transferring assets you plan to sell or replace before your death into your trust. Since probate only applies to property you own at your death, it’s simpler to keep such items outside the trust. If you do purchase property you intend to keep long-term, you can always acquire it directly in the name of your trust.

Pets

Although pets feel like family, the law treats them as property. To ensure your pet’s care, use your will to leave them to a trusted caregiver. If you want to specify detailed care instructions or set aside funds, consider establishing a pet trust. A basic living trust typically isn’t designed for this purpose.

Life Insurance

Life insurance proceeds go directly to the beneficiary named on the policy, bypassing probate. But keep in mind that these proceeds are still counted as part of your estate for federal estate tax purposes.

Retirement Accounts

Accounts like IRAs, 401(k)s, and similar retirement plans can’t be owned by your living trust while you’re alive. Instead, avoid probate by naming beneficiaries directly on these accounts. Your plan administrator can provide the necessary forms. As long as you don’t list your estate as the beneficiary, these funds will transfer outside of probate. If you do name your trust as the beneficiary, required minimum distributions after your death will be based on the trust beneficiary’s life expectancy.

Other Assets with Direct Beneficiary Designations

As discussed above, most financial and brokerage accounts allow you to name beneficiaries right on the account. When you do, these assets pass directly to those individuals and skip probate, so there’s no need to include them in your living trust.

How to Transfer Property to Your Living Trust

After you decide what property to add to your trust, you’ll need to make those transfers. How it’s done depends on the type of property. For some property, you’ll only have to sign a simple document called an “assignment of trust.” But the process for other types of property--like real estate--will be more complicated and will require some technical paperwork. We have a separate article that details how to transfer all types of property.

Learn More About Making a Living Trust

A living trust is one of several tools you can use to keep your estate out of probate and make things easier for the people you leave behind. Deciding which assets belong in the trust—and which are better handled with beneficiary designations or other tools—will help you see how your living trust fits within your will, beneficiary designations, and other pieces of your plan.

You can find out more about making WillMaker’s living trust in WillMaker’s Legal Manual.