It’s easy to assume you’ll just put everything into a living trust and call it a day when you first start thinking about estate planning. It’s supposed to make things simpler for your family, help you avoid probate, and ensure your assets are protected. But as you dive deeper, you’ll realize that not everything belongs in a trust. In fact, there are certain things that can cause more harm than good if included.
Trusts are great, but they aren’t a one-size-fits-all solution for everything you own. Some things are better left out of a trust, and if you’re not careful, you might create a big headache for your beneficiaries down the line.
So, before you start moving everything into your trust, take a moment to double-check. Here’s a breakdown of 15 things you should never put in a living trust– it’s a lesson worth learning.
1. Retirement Accounts (401(k), IRA)
Let’s kick this off with one of the big ones, your retirement accounts. These are often tax-deferred, meaning you don’t get to enjoy the tax advantages until you withdraw the money. If you transfer them into a living trust, you could trigger immediate taxes. Not exactly the outcome you want, right?
Instead, designate beneficiaries directly through your retirement account. It’s simple, keeps your tax benefits intact, and passes the account directly to your loved ones without the extra paperwork.
2. Health Savings Accounts (HSAs)
Much like retirement accounts, HSAs come with tax perks. These are meant for medical expenses, and the tax benefits are a huge plus. If you move your HSA into a trust, you might lose those benefits, and no one wants to deal with that.
To keep things easy, just assign a beneficiary to your HSA. It’s a much cleaner way to pass those funds along without losing the tax-free advantage for healthcare costs.
3. Vehicles
You might be tempted to put your car into your living trust, but that can end up being more complicated than it’s worth. Many states have rules around transferring vehicles, and adding them to your trust can mean extra hoops to jump through.
A simpler option? Designate a transfer-on-death (TOD) beneficiary for your vehicle. That way, it can pass directly to your heir without getting the trust involved or causing delays with the DMV.
4. Life Insurance Policies
Life insurance is another asset that doesn’t need to go into a living trust. These policies already come with their own set of beneficiaries. If you put them in a trust, it could slow down the payout process or create unnecessary tax complications.
The smarter move is to keep your life insurance outside the trust and just make sure your beneficiaries are listed correctly. This keeps everything streamlined for your loved ones.
5. Jointly Held Property
If you own property jointly with someone else, like your spouse, it’s probably set up with the right of survivorship, which means it automatically transfers to the co-owner when you pass. Putting it in a trust could mess with this smooth transition.
It’s better to let joint property pass as intended, avoiding any extra steps that might complicate things for the surviving owner.
6. Payable on Death (POD) Accounts
POD accounts are designed to bypass probate altogether, making them a handy tool for passing on assets. If you add these to your trust, you’re just adding extra logistical hoops that aren’t necessary.
Keep these accounts separate, and let the funds transfer directly to your beneficiaries when the time comes. No trust is needed.
7. Transfer on Death (TOD) Accounts
TOD accounts work similarly to POD accounts but are often used for things like stocks and bonds. These accounts are already set up to transfer directly to your chosen beneficiaries when you pass, so there’s no need to put them in a trust.
By leaving them out of your trust, you keep the transfer process simple and hassle-free for your heirs.
8. Certain Types of Annuities
Not all annuities should go into a living trust. Some already have built-in beneficiaries, and putting them in a trust could disrupt how they pay out or trigger unintended taxes.
If you’re not sure whether your annuities belong in the trust, check with your financial advisor. Most of the time, it’s better to leave them as they are.
9. Foreign Assets
Here’s where things can get tricky. If you own assets in another country, putting them in a U.S. living trust can lead to a whole mess of legal issues. Each country has its own rules for inheritance, and adding these assets to your trust might complicate things more than you’d expect.
Instead, work with an attorney who specializes in international estate planning to handle your foreign assets. It’s worth the extra step to make sure everything’s handled correctly.
10. Business Interests with Restrictions
If you own a business, you might think it’s a good idea to add it to your trust. But if your business is part of a partnership or has buy-sell agreements in place, putting it in a trust could violate those agreements and create issues down the road.
Instead, focus on creating a separate succession plan for your business. This ensures everything transfers smoothly without tripping over any legal hurdles.
11. Individual Retirement Annuities
Like other retirement accounts, individual retirement annuities come with tax-deferred benefits that you don’t want to mess with. Moving them into a trust could lead to immediate taxes and wipe out those advantages.
The better approach is to keep your annuities separate and update the beneficiaries directly with the account provider. That way, they transfer smoothly without any tax hiccups.
12. Personal Checking or Savings Accounts
Your everyday checking and savings accounts don’t need to be in a trust either. These can be passed on quickly and easily with a payable-on-death designation, which avoids probate altogether.
By keeping these accounts out of the trust, you’re saving yourself, and your beneficiaries, a lot of unnecessary paperwork and delays.
13. U.S. Savings Bonds
U.S. Savings Bonds come with specific rules, and transferring them into a trust can complicate things. You might even lose some of the benefits tied to these bonds if you make that move.
It’s better to keep your savings bonds separate from the trust and manage them directly through the Treasury’s system.
14. Digital Assets
Digital assets like cryptocurrency or online accounts are still somewhat uncharted territory in estate planning. Putting them in a trust can create confusion, especially if the platforms you’re using don’t recognize trusts as legal entities.
The best thing you can do is keep a clear record of your digital assets, including passwords and instructions, and store it securely for your beneficiaries. It’s a straightforward solution without the complications.
15. Frequent Flyer Miles or Loyalty Points
Here’s one you might not expect, frequent flyer miles and loyalty points. These often come with rules that dictate how (or if) they can be transferred after you pass. Putting them in a trust won’t change those rules.
Contact the airlines or companies managing your loyalty programs to see if and how you can transfer your points directly to someone else.
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With an honors degree in financial engineering, Omega Ukama deeply understands finance. Before pursuing journalism, he honed his skills at a private equity firm, giving him invaluable real-world experience. This combination of financial literacy and journalistic flair allows him to translate complex financial matters into clear and concise insights for his readers.
With an honors degree in financial engineering, Omega Ukama deeply understands finance. Before pursuing journalism, he honed his skills at a private equity firm, giving him invaluable real-world experience. This combination of financial literacy and journalistic flair allows him to translate complex financial matters into clear and concise insights for his readers.
