You may have heard that trusts can be handy, and that with a trust you can usually avoid probate court procedures after your death and even during a period in which you might be quite disabled before you die. That idea is pretty solid.
Have you also heard that if you bother to create a trust, you had better “fund it” or assign assets to the trustees of the trust, or rename accounts, such that they become part of the trust? That much is pretty solid advice too–in fact it is critical to keep in mind, because creating a slightly expensive trust, but leaving it empty, is usually not smart. So the general rule is to put almost everything you own into the hands of the trustees of your trust, or to fully “fund” your trust.
However, are there a few assets that should probably be left out of the trust, on purpose? I think so.
My suggestion is to leave vehicles, at least those used every day, out of trusts. There might be more liability than benefit to put vehicles in trust, and they might be trickier to insure as part of a trust. Also, as to vehicles in Michigan, there is a non-probate, non-trust way to transfer vehicles after death to next of kin anyway through the offices of the Michigan Secretary of State.
Retirement accounts (think IRA or 401(k), 403(b) and certain qualified annuities) can/should probably be left out of trusts especially if a withdrawal and tax hit would be involved, and you have named beneficiaries for those accounts. (We suggest talking to your tax or investment person too–discuss with them the idea of naming the trust as the secondary beneficiary of the account.) at a minimum, if you do park such accounts in your trust, do so in a thoughtful manner being aware of any tax advantages or disadvantages and other goals.
Likewise most folks leave any Health Savings Account or Medical Savings Accounts out of your trust, at least initially, since these accounts already allow you to use the money tax-free for allowable medical expenses. Again though, you might name the trust as the primary or secondary beneficiary.
If you are curious about making a trust or updating an old trust, or if you have become the trustee of a trust now that the original folks creating the trust (often called a settlor or grantor) have died or become disabled, and you have the job of administering the trust, feel free to call us for help or ideas.