What Not to Put in a Living Trust

Living trusts can be highly beneficial in avoiding probate, protecting your assets, and providing for your loved ones. While many of your assets can go into your living trust, it’s important to be aware of what not to put in a living trust. Our team at Rilus Law has created hundreds of estate plans and guided clients through what assets should and should not be included in their trust.

Here is what not to put in a living trust:

1. Life Insurance

Life insurance benefits automatically go to the beneficiary named on the policy, meaning that it would be redundant to put the policy in your living trust. However, if your living trust provides asset protection to your beneficiaries (in case of events like lawsuits and divorces), then it may be a good idea to name the trust as the beneficiary of your life insurance policy.

As with any other major estate planning decision, you should always seek the guidance of an experienced estate lawyer before determining whether or not this is the right call for you. There is no ‘one size fits all’ approach here, as everyone’s case is different.

2. Retirement Accounts

Retirement accounts like 401(k)s and IRAs should never be put into a living trust. If you were to do this, it would be viewed as a total withdrawal of the funds, subjecting them to income tax in the year you transferred the funds.

Not only would this essentially defeat the purpose of opening a retirement account, but it would leave far less to your beneficiaries than you had anticipated. Instead of putting your retirement account into your living trust, you should designate a beneficiary.

With guidance from an estate planning attorney, it may even make sense to designate a trust as the beneficiary. Make sure to discuss this with your lawyer before making a decision.

3. Motor Vehicles

There are a few reasons why you should never put motor vehicles into a living trust. For starters, the process to transfer the titles over is an unnecessarily difficult one. It requires a ton of paperwork and also comes with added risks.

One of the biggest risks of placing your car into your trust is that the trust assumes legal responsibility for the vehicle. This means that in the event of an accident at which the driver of that car is at fault, the other assets in the trust will be exposed to any liability claims not covered by insurance.

We recommend avoiding this by leaving your motor vehicles out of your living trust and, instead, simply working with your estate planning attorney to put an after-death transfer process in place.

Top Estate Planning Attorneys in Arizona

At Rilusa Law, our top Arizona estate planning attorneys are here to guide you through the process from start to finish to ensure that your needs are met. We plan for today to create peace of mind for tomorrow. Rilus Law is one of the top estate law firms in Arizona and California, and you will soon understand why.

Contact us today to learn more about our services or to schedule a free consultation with one of our top estate planning attorneys.