A trust helps avoid probate, simplifies asset transfer, and brings clarity to your legacy. But not everything belongs in a trust, at least not part of the trust funding. In fact, putting the wrong thing in a trust can actually make things worse. Let’s explore the most common assets not for trusts and why they deserve their own lane (e.g., you can name the trust as a beneficiary).
Funding a trust means putting assets into the trust. However, funding isn’t the best option for all assets—for some assets, naming the trust as a beneficiary is a better way to go. Those assets include: retirement accounts, life insurance policies, Health Savings Accounts (HSAs), vehicles, and everyday checking accounts.
1. Retirement Accounts: Hands Off!
Retitling IRAs, 401(k)s, and other tax-advantaged retirement accounts into your trust can trigger immediate taxation—yikes. However, you can name your trust as a beneficiary.
Example: Jake moved his 401(k) into his trust, thinking he was simplifying things. What he got instead was a hefty tax bill. The IRS treated it like a full withdrawal. Lesson learned.
2. Life Insurance Policies: Keep Ownership Simple
Generally, you shouldn’t transfer ownership of your life insurance policy into your trust unless you have a specific reason (like tax planning in very large estates). However—again—you can name your trust as the beneficiary.
Example: Melanie wanted her life insurance to fund a trust for her kids. Great idea! But instead of naming the trust as the beneficiary, she moved the policy itself into the trust. The insurance company got confused, and her payout was delayed.
3. Health Savings Accounts (HSAs): Let These Be
HSAs aren’t transferable to trusts. You can’t title them in the name of a trust, and doing so will disqualify the account. But you can designate the trust as a beneficiary if you want the funds to go there.
Example: Raj tried to retitle his HSA into his living trust. The financial institution politely declined and flagged his account. He ended up having to refile a bunch of paperwork to fix the mess.
4. Vehicles: Think Twice
Unless your car is a collector’s item or worth a lot, putting it in your trust might be more trouble than it’s worth. Some states require additional documentation, and your insurance provider may raise an eyebrow.
Example: Sam added his pickup truck to his trust. The DMV got involved. The insurance company asked for extra forms. All that hassle for a 12-year-old truck with 180,000 miles. Not worth it.
5. Everyday Checking Accounts: Optional, But Not Essential
Your daily-use checking account might not need to be in your trust. Doing so can complicate bill-paying and lead to bank headaches. A beneficiary designation may do the trick instead.
Example: Nora put her checking account into her trust. Then her debit card stopped working until she verified her trustee status. She spent three hours on the phone to buy groceries.
Assets Not for Trusts: Keep It Clean
Trusts are fantastic, but they don’t need to hold everything. And the alternative is simple: for some assets, naming the trust as a beneficiary is more effective than funding the trust—and less complicated. Knowing which assets are not for trusts helps your estate plan work smoothly and spares your loved ones a lot of stress.
Double-check your account types, beneficiary designations, and any automatic transfer options (e.g., upon passing). Sometimes the simplest solution is the smartest one. Just ask Sam and his truck.
