What should you not put in a living trust?


Editorial team Published on

You should not put tax-advantaged accounts like IRAs, 401(k)s, and Health Savings Accounts directly into a living trust because retitling them can trigger immediate and heavy income taxes.

Read more guidance on proper asset placement from Kiplinger.

Assets to Keep Out of a Living Trust

  • Retirement Accounts (IRAs, 401(k)s, 403(b)s): Transferring ownership directly to a trust counts as a full withdrawal. This creates a massive tax bill. Instead, name the trust as a beneficiary on the account forms.
  • Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs): These lose their special tax-free status if you retitle them into a trust. Keep them in your name and list the trust as a beneficiary.
  • Annuities: Moving an annuity into a trust can force the insurance company to treat it as a cash-out. This makes all your deferred gains taxable right away. Name the trust as a contingent beneficiary instead.
  • Life Insurance Policies: You do not need to own a policy inside a standard living trust. The payout goes straight to your chosen beneficiary without probate. You can name the trust as the beneficiary if you want the trust to control the payout later.
  • Everyday Vehicles: Cars and trucks do not need a trust. Most states let your family transfer a vehicle with a death certificate and a simple DMV form. Putting cars in a trust just creates extra paperwork with your auto insurance and car registration.