You may want to keep certain assets out of your living trust.
Multitools can be incredible instruments.
Many have knives, saws, files, screwdriver heads, and pliers.
Think the venerable, time-tested Swiss Army Knife.
With so many instruments in one handle, people may think they are suitable for any task.
Although they can be incredibly versatile, they cannot meet every need.
There will be times when another tool is more suitable for accomplishing a task.
Living trusts are the same.
They can help manage assets, avoid probate, and transfer wealth to heirs.
Even so, they are not suitable for certain assets.
In fact, titling these assets to a trust can trigger legal complications, tax consequences, and administrative burdens.
Living trusts are legal entities for managing assets while you are alive and directing distributions after you are incapacitated and, well, when you are not alive.
Unlike a last will and testament, a living trust provides privacy, flexibility, and efficiency.
Although they have numerous benefits as estate planning instruments, they are not a universal solution.
Specific assets function better when outside of a trust.
Many people mistakenly believe living trusts are suitable for retirement account transfers.
They are unaware of federal tax rules requiring IRAs, 401(k)s, and pensions to remain in the owner's name until a distribution or withdrawal.
If a retirement account is retitled to a living trust during the owner's lifetime, it may result in an immediate tax on the account's full balance.
Yikes!
Individuals should use beneficiary designations on their retirement accounts to transfer them to their heirs directly, unless they are minor children, financially irresponsible, receiving means-tested public assistance, or facing other asset protection concerns.
Doing so preserves applicable tax advantages for heirs.
It is generally unhelpful for trusts to own trucks, cars, and other vehicles.
Why?
Sometimes, trust ownership can complicate insurance, retitling, and both buying and selling.
Because most states have small estate provisions that allow the postmortem transfer of motor vehicles outside probate, the inclusion in living trusts is unnecessary.
Only if the car is a valuable collectible or part of a business should it be considered for inclusion in a trust.
Again, this is circumstance-driven, not a hard-and-fast rule of thumb.
Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) have unique tax benefits.
This tax treatment is incompatible with trust ownership.
Similar to retirement accounts, you should assign these unique savings accounts to beneficiaries directly through the account provider's beneficiary designation option.
When handled this way, the accounts will transfer directly to the named beneficiary.
Assets with named beneficiary designations, such as payable-on-death (POD) bank accounts, life insurance policies, or transfer-on-death (TOD) securities accounts, will bypass probate if there is a beneficiary designated.
Trying to include them in a trust will often complicate matters.
Instead, the best estate planning action is to review and update the designations regularly.
Although real estate is commonly titled in living trusts, non-primary residence real estate should always be approached with caution when the mortgage is yet outstanding.
Why?
The transfer of a house with a mortgage into a trust can trigger due-on-sale clauses with lenders.
To ensure a real estate transfer complies with lending agreements and trust law, you should seek proper legal guidance.
This step is especially true when the real estate you are seeking to retitle is not your primary residence.
There is no universal rule for estate planning.
What may work for your family may not work for your neighbor.
It is essential to work with an experienced estate planning attorney to determine whether you need a living trust at all, and, if so, ensure it is properly created, executed, and funded to achieve your objectives.
If you are considering a living trust as part of your estate planning, request a consultation with our law firm located in Overland Park, Kansas.
Retirement accounts and both Health and Medical Savings Accounts are not suitable for trust ownership.
Retitling retirement accounts into your living trust can trigger a significant, immediate tax bill.
Unless a vehicle is a collectible, it may be simpler to arrange for it to transfer on death than to retitle it in your trust, as this may complicate matters.
Using a living trust for life insurance, transfer-on-death accounts, and payable-on-death accounts may be unnecessary, as they already bypass probate when appropriately used.
Living trusts require the involvement of an experienced estate planning attorney to ensure proper creation, execution, and funding, and to meet your needs.
Note: The advice in this post is very general and broad-brushed, and it could and does vary depending on the unique circumstances of each client.
This post is for informational purposes only and does not provide legal advice. You should consult an attorney for advice on any specific issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: Yahoo Finance (September 11, 2025) "If you want your kids bypass probate when you die, here are 5 assets to avoid putting in a living trust"
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