Don't Trust Everything: Assets to Keep Out of Your Living Trust

Summary

While a living trust is a powerful estate planning tool, not all assets should be placed inside it, as doing so can lead to unintended tax consequences and loss of protections. Tax attorney Toby Mathis outlines seven types of assets that generally should not be titled in your living trust and explains the better alternatives. Retirement accounts like 401(k)s and IRAs should not be transferred into a trust because it can trigger immediate taxes; instead, coordinate them through beneficiary designations, naming your spouse as primary and the trust as contingent for asset protection. Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) are individual accounts that lose tax benefits if put into a trust; beneficiaries should be named directly. Annuities are already structured like trusts, and titling them in your living trust can cause a taxable surrender event; name your spouse as primary beneficiary, then the trust as contingent. Life insurance policies already avoid probate, so moving them into a trust typically adds complexity without benefit, though an irrevocable life insurance trust can be used for very large estates. Vehicles, like cars and boats, are usually easy to transfer via state processes or transfer-on-death titles, and placing them in a trust can create liability issues and insurance complications, unless they are high-value collectibles. Regulated assets and licenses, such as professional licenses or liquor permits, have specific ownership rules and can be invalidated if improperly transferred to a trust. Finally, 529 college savings plans have their own ownership structure and the account owner already has control; name an individual or your living trust as a successor owner to avoid probate. The key is ensuring assets transfer correctly with minimal tax and maximum control, which may involve beneficiary designations rather than direct trust ownership.