Properties That Are Commonly Held in Trusts
Trusts are an essential tool in estate planning, offering a way to manage and protect assets for the benefit of beneficiaries. By placing property in a trust, individuals can make sure that their wealth is distributed according to their wishes, while potentially avoiding probate and minimizing tax burdens.
But what kinds of properties are typically held in trusts? From real estate to financial assets, a wide variety of property types can be included in a trust, each serving different purposes and offering specific benefits. Here, Attorney Steven Peck at the Law Offices of Steven H. Peck, Ltd. in Riverwoods, Illinois, will explore the most common types of property held in trusts, explaining their roles in protecting and managing wealth for future generations.
Why Are Certain Properties Commonly Held in Trusts?
When setting up a trust, people often focus on what to include so that beneficiaries gain the right mix of support and security. Trusts come in many forms, and the decision to include specific properties depends on long-term goals, tax considerations, and the desire to simplify asset management.
Some individuals prefer to place only their most valuable possessions, while others find it helpful to include a broad range of items. The variety of assets that can be transferred is wide, from residential real estate to retirement accounts.
Because trusts offer various legal and financial benefits, many people choose this method to avoid probate or to control how assets are distributed after they pass away. Illinois law recognizes different trust structures, giving people flexibility in shaping their plans.
Estate planning through trusts can help reduce confusion and disputes among beneficiaries. It’s often easier for family members to follow instructions laid out in a trust than to grapple with unclear asset distributions.
Illinois homeowners often decide to place their primary residences in trusts.
Residential Real Estate and Primary Homes
This move offers a combination of smoother transfers and potential tax advantages. For many families, the home is a major asset that represents not just financial value, but also emotional value. Including a home in a trust can help prevent disputes if multiple beneficiaries have an interest in the property. It can also:
Protect beneficiaries: Transferring a home into a trust can make sure it’s smoothly passed to children or other loved ones without the delays.
Let you retain control: Trust documents allow for specifying conditions. For example, a trust may dictate that a beneficiary can only access the property upon reaching a certain age.
Provide a residence: Placing a home in a trust can confirm that a spouse or family member can continue living there, even if others also have a stake in the property.
In addition to primary residences, vacation properties, cabins, and secondary residences often pose unique estate planning questions.
Vacation Homes and Secondary Properties
These properties may be in Illinois or out of state. Trusts can streamline management and clarify who gets to use the property, as well as who bears costs like maintenance and property taxes. Some common reasons to consider including these properties in a trust include:
Shared use arrangements: If multiple family members enjoy spending time at a vacation cabin, a trust can lay out who has access and when, helping reduce disagreements.
Tax considerations: Some properties could involve additional taxes or intricacies if transferred outright. A trust can help manage these concerns.
Ongoing maintenance: A trust can set aside funds for upkeep and repairs. This can confirm that all beneficiaries share financial responsibilities fairly.
In addition to secondary homes, Illinois’s agricultural heritage means that farmland is a common property type placed in trusts.
Farmland and Agricultural Assets
Families who have worked the land for generations might want to preserve its character for future heirs. A trust can carefully detail operational guidelines and management responsibilities, which helps keep the business running smoothly. Some common reasons why you may choose to include farmland in your trust include:
Protecting family legacies: By holding farmland in trust, owners can confirm that the land stays in the family for generations without forced sales due to estate taxes or conflicts.
Defining management roles: The trust can name a trustee or manager who knows how to run the farm, preserving operational continuity.
Preparing for changes: If future beneficiaries aren't interested in farming, a trust can outline options for leasing or selling the land under specific conditions.
If you don't own farmland, properties that generate income—such as rental homes, duplexes, or small apartment buildings—are also frequently included in trusts.
Rental and Investment Properties
Holding these properties in a trust can simplify income distribution, maintenance responsibilities, and decision-making.
A trustee can manage rental agreements, track expenses, and handle major repairs, providing a smoother process for beneficiaries who may not want day-to-day involvement. Some common reasons to include these types of properties in a trust include:
Streamlined distribution of income: A trust can distribute rental income to beneficiaries at regular intervals, reducing disputes.
Centralized management: The trustee can handle repairs, tenant issues, and property taxes, removing burdens from family members who may not have the time or inclination.
Tax advantages: Depending on the structure, certain trusts may provide tax benefits, making long-term ownership more cost-effective.
Many Illinois residents hold interests in small businesses or commercial properties as well as rental and investment properties.
Business Interests and Commercial Properties
Incorporating these assets into a trust can help maintain continuity if the owner passes away. Without a trust or a will, the business might face operational uncertainty. Some common reasons you may place business interests in a trust include:
Continuity of operations: If an owner becomes incapacitated or passes away, the trustee can step in and follow instructions on how to keep the business running.
Reducing probate involvement: Businesses can be tricky to transfer after death. Holding them in a trust often means a smoother process.
Strategic planning: A trust can outline buy-sell agreements, partner roles, or conditions for liquidating the business if certain events occur.
Financial portfolios, including stocks, bonds, and mutual funds, are also commonly placed in trusts.
Financial Assets Such as Stocks, Bonds, and Mutual Funds
This approach helps maintain consistency in investment management, even when personal circumstances change. You may choose to include these assets in a trust due to:
Professional management: Trustees can work with financial advisors to confirm investments are managed according to the trust’s instructions, even if a beneficiary is inexperienced in investing.
Simple distributions: Trust documents can specify how and when beneficiaries receive distributions from investments, helping them avoid sudden large sums that could be mishandled.
Tax planning: Incorporating certain financial assets into a trust may assist with tax strategies that preserve wealth over time.
Retirement accounts, like IRAs or 401(k)s, and life insurance policies sometimes become part of an estate planning trust as well.
Retirement Accounts and Life Insurance Policies
While these assets often have designated beneficiaries, a trust can add another layer of clarity. For instance, if a beneficiary isn't ready to manage a large sum from life insurance proceeds, the trust can hold those funds until a specified event or age. You may choose to include these assets due to:
Benefit protection: A trust can hold life insurance proceeds, preventing beneficiaries from mismanaging a sudden lump sum.
Coordinated distribution: Retirement accounts can be challenging, but placing them in trust might help integrate these funds with other property distributions.
Contingency planning: If the primary beneficiary dies, the trust outlines who inherits next, avoiding administrative complications.
Of course, not all properties are large or income-producing. Heirlooms, jewelry, art collections, and memorabilia carry sentimental value that might exceed their financial worth.
Personal Items, Collectibles, and Valuables
Including these in a trust helps confirm that cherished items are passed along according to the grantor’s wishes. You may include these items in a trust to:
Avoiding family disputes: Clear instructions in a trust can reduce disagreements over who inherits valuable or sentimental items.
Organized record-keeping: Trust documents can describe where each item should go, helping beneficiaries understand the distribution without confusion.
Preserving legacy: These items often represent family history, and a trust can maintain that legacy for future generations.
Trusts offer a flexible and efficient way to manage a wide range of assets, providing both protection and control over the distribution of wealth. Whether it's real estate, investments, business interests, or personal belongings, placing property in a trust can help achieve your estate planning goals and make sure your assets are handled according to your wishes.
Contact an Estate Planning Attorney Today
Attorney Steven Peck at the Law Offices of Steven H. Peck, Ltd. knows how to structure trusts to hold everything from homes and farmland. He assists clients throughout Cook County, Lake County, McHenry County, and DuPage County. Contact the firm today to schedule a consultation.