9 Assets You Should NEVER Put into a Living Trust

"So, I just transfer everything I own into the trust… right?"

That's what many people assume after signing their trust documents. Not quite.

Putting the wrong asset into your revocable trust could blow up your estate plan. I've seen well-meaning people trigger surprise taxes, confuse financial institutions, and even leave their family stuck in probate - all because of one bad funding decision.

In this post, I'll show you what assets you should never put into a living trust, why it matters, and the smart alternatives that protect your legacy without creating headaches

Common Trust Myths

Before we dive into specific assets, let’s clear up the biggest misconceptions I see that lead to some really expensive mistakes.

Myth 1: “A revocable trust gives me asset protection.”

This one comes up a lot. People think that once assets are in the trust, they’re safe from lawsuits or creditors. The truth? A revocable trust offers zero protection while you're alive because you maintain full control of everything. If someone sues you, those assets are just as reachable as if they were in your personal name.

Myth 2: “A trust and a will are basically the same thing.”

While both direct where assets go, only a properly funded trust avoids probate. A will guarantees court involvement. The key word is "properly" funded - if you include the wrong assets, you could still end up in probate, but with more paperwork.

Myth 3: “Everything I own should go into my trust.”

This misconception is particularly dangerous. Some assets lose tax advantages when transferred to a trust. Others create insurance and legal complications. More isn't always better when it comes to trust funding.

Myth 4: “If I create a trust, I’ll lose control of my money.”

That’s another big one. With a revocable trust, you remain the trustee. You manage the assets, can change the rules, and can revoke the entire trust if desired. There's no loss of control - just more flexibility and protection for your future.

So with those myths out of the way, let’s talk about the assets you shouldn’t put in a revocable trust - starting with one that surprises a lot of people: your retirement accounts.

Assets You Should NEVER Put into a Living Trust

Retirement Accounts

I often talk to people who assume they should move their retirement accounts into their trust for simplicity. But here’s the thing - doing that would trigger a complete withdrawal. Taxes. Penalties. The whole thing could unravel fast.

So what’s the better move? In most cases, it’s better to keep the account in your name and name a trust as the beneficiary - not the owner. This is especially helpful if you’re concerned about a younger or less financially savvy heir getting too much too soon.

And this is where the SECURE Act and SECURE Act 2.0 really changed the landscape. Before 2020, a properly drafted trust could stretch inherited IRA distributions over the beneficiary’s lifetime. That’s no longer allowed for most people. Today, if your beneficiary is an adult child, the inherited IRA generally has to be emptied within 10 years of your passing.

Let’s say someone wants their 22-year-old daughter to receive half of their IRA at age 30 and the other half at 40. Under the current rules, the trust would still have to take full distribution of the IRA within 10 years but the trust could hold those funds and delay access to them based on the terms you set.

Just be careful: if the trust isn’t written correctly, it could trigger accelerated taxes or even disqualify the trust as a beneficiary altogether.

Health Savings Accounts

Now let’s talk about HSAs, which function like a medical IRA. They’re designed for you, not your trust.

You can’t retitle an HSA into a trust without creating complications. In fact, the IRS considers this a taxable distribution of the entire account and doing so could eliminate the tax-free treatment entirely.

What I usually suggest is to leave the HSA in your name and simply list a beneficiary. Often that’s your spouse, but it could also be your trust depending on the rest of your estate plan. The important thing is to make sure it aligns with your goals.

Life Insurance

Let’s move on to life insurance, which often creates confusion. If you name a beneficiary on your life insurance policy, it already avoids probate. There’s usually no need to involve your trust in the ownership of the policy itself.

But if the living trust owns the policy, the death benefit might be counted as part of your taxable estate. That could be a problem depending on your state or the size of your estate.

For clients who are concerned about estate taxes, the use of an irrevocable life insurance trust can be a better option. That’s a different kind of trust that’s specifically designed to keep the death benefit out of your estate.

For example, Jane has a $3M estate and a $2M life insurance policy – pushing her above the estate tax exemption in some states. If the trust owns the policy, her estate could owe tax on $5M. But if she sets up an irrevocable life insurance trust, that $2M passes tax-free, outside her estate.

For most people, keeping the policy in their name and naming the trust or a loved one as the beneficiary will do the job. But if you’re worried about taxes, let’s talk about an ILIT.

Annuities

Annuities are another trap. They look like normal investments, but they’re actually contracts with insurance companies. Those contracts come with specific rules and benefits that can be lost if ownership changes.

I remember a couple who transferred a $300,000 annuity into their trust, thinking it was no different than moving a bank account. They had no idea it could trigger surrender charges and wipe out the death benefit rider they had been paying extra for.

So when it comes to annuities, it is better to keep them in your personal name. If you want your trust to control where the funds go after you pass, you can name the trust as the beneficiary instead of retitling the account. That lets you maintain the contract’s benefits while still coordinating your estate plan.

Vehicles

Now let’s talk about vehicles. This includes not just your car but also your boats, RVs, and motorcycles.

I’ve seen situations where someone puts a vehicle, like a Tesla, into their trust, and the whole thing falls apart. The insurance company raises the premium by 30%, the DMV rejects the title, and they end up with more stress than when they started.

Most of the time, vehicles don’t need to go into a trust. In many states, they can be transferred after death with a simple form and a death certificate. Plus, putting a vehicle into the trust could open up liability issues. If there’s an accident, your trust could be dragged into a lawsuit. Why expose your entire estate?

So in most situations, we tell our clients to leave vehicles in their personal name and just include transfer instructions in their estate documents. Something like “Give the truck to Jake” works just fine and avoids the red tape.

Jointly Owned Assets with Right of Survivorship

If you already own something jointly with someone, like a spouse, it usually avoids probate. But adding that asset to your trust could conflict with the joint title.

It’s like driving with two GPS systems giving different directions. Your estate plan says one thing, the title says another, and your heirs are left arguing in probate court.

To keep things clean, I tell clients to review their titles and make sure they match the intent of the trust. If an asset is jointly owned and meant to stay that way, the trust should reflect that so everyone stays on the same page.

Out-of-State or Foreign Real Estate

Another area to be careful with is out-of-state or foreign real estate. Just because your trust is valid in one state doesn’t mean it will be recognized everywhere.

Say you live in Illinois but own a beach house in Florida and a rental in Costa Rica. You transfer your Illinois home into your trust - great. But that out-of-state property might not be recognized - triggering probate in another state or even another country.

Whenever one of our clients owns property outside their home state, I usually recommend talking to a local attorney in that jurisdiction. You may need a second trust, or possibly an LLC, to hold the property and avoid extra legal hurdles down the line.

S-Corp Stock

Here’s where things get technical. Some business entities, like S-Corps, have rules about who can own shares. If you move those into a revocable trust without checking, you could accidentally blow your S-Corp status.

My rule of thumb is to always review shareholder agreements or operating agreements before transferring ownership. In some cases, the trust can hold the interest with no issues. In others, we need to use a specially drafted trust or a different approach altogether.

For example, imagine a doctor who puts his S-Corp medical practice into his revocable trust without talking to his business attorney first. That one move could unknowingly terminate his S-Corp election and lead to double taxation. A simple conversation between his advisors could’ve prevented that kind of mistake.

Everyday Bank Accounts

Your checking account doesn’t need to be in the trust - especially if you use it for daily expenses, automatic payments, or business transactions. This one might seem harmless, but it can create a real hassle.

A friend of mine retitled her checking into the trust, and her debit card stopped working. Turns out, the bank froze the account while reviewing the paperwork. Automatic payments failed, and it turned into a mess.

To avoid that kind of disruption, I usually suggest keeping those daily-use accounts in your personal name. You can still avoid probate by adding a payable-on-death designation, which keeps your estate plan intact without interfering with your regular cash flow.

Final Thoughts

Proper trust funding isn’t just about avoiding probate. It’s about making sure the right assets get to the right people at the right time, with as little complexity and tax exposure as possible.

If you’re not sure whether your trust is funded correctly, here are a few steps I recommend:

• Start by taking inventory of all your assets

• Review how each one is titled and who the beneficiaries are

• Consult with a qualified professional if you’re unsure about anything

• And make sure your decisions are documented and kept up to date

Trust planning isn’t a one-time event. It’s something that should be reviewed regularly as your life, your assets, and the laws all change.

If you’re setting up a trust or already have one, it’s worth making sure your assets are actually aligned with it. We offer Estate Clarity Meetings to help you review titles, beneficiaries, and accounts so your plan works the way you intended. Feel free schedule one.