What Assets Should NOT be Placed in a Trust?

What Assets Go in a Trust and What Assets Stay Out?

Assets Commonly Placed in a Trust

1. Real Estate:
   • Primary Residences: Often placed in a trust to avoid probate and ensure smooth transfer of ownership.
   • Investment Properties: Including rental properties and vacation homes, to manage and distribute income and ownership efficiently.
2. Bank Accounts:
   • Checking and Savings Accounts: To provide the trustee with easy access to funds for managing the estate.
   • Certificates of Deposit (CDs): To ensure these funds are part of the trust’s management and distribution plan.
3. Non-Retirement Investment Accounts:
   • Brokerage Accounts: Including stocks, bonds, and mutual funds, to simplify the transfer and management of these assets.
4. Personal Property:
   • Valuable Personal Items: Such as jewelry, art, antiques, and collectibles, to ensure these items are distributed according to your wishes.
5. Business Interests:
   • Privately Held Business Interests: Including shares in privately held companies, to facilitate continued management and transition of business interests.

Assets Typically Left Out of a Trust

1. Retirement Accounts:
   • 401(k) Plans and IRAs: These accounts are usually not placed in a trust because of tax implications. Naming a designated beneficiary allows the account to be transferred directly to the beneficiary, who can then manage withdrawals in a tax-efficient manner.
     • Tax Considerations: Placing a pre-tax retirement account in a trust often leads to the account being liquidated upon death, resulting in a large tax bill as the entire account balance is treated as income in the year of death.
2. Life Insurance Policies:
   • Beneficiary Designations: Life insurance policies typically name beneficiaries directly, bypassing the need for inclusion in a trust. This ensures the proceeds are distributed quickly and without the need for probate.
     • Trust as Beneficiary: In some cases, especially if the policy is intended to provide liquidity for the trust, the trust itself may be named as the beneficiary.
3. Payable-on-Death (POD) and Transfer-on-Death (TOD) Accounts:
   • Bank and Investment Accounts: These accounts allow for the direct transfer of assets to named beneficiaries upon death, making them unnecessary to include in a trust.
4. Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs):
   • Beneficiary Designations: These accounts also typically have beneficiary designations and are not included in a trust.

Special Considerations

1. Blended Families: For individuals with children from previous marriages, trusts can be used strategically to ensure that all children are provided for according to specific wishes.
2. Special Needs Beneficiaries: Trusts can include provisions for special needs beneficiaries to ensure they receive appropriate care without jeopardizing eligibility for government benefits.
3. Charitable Giving: Trusts can be designed to include charitable donations, ensuring that specific philanthropic goals are met.

Why Some Assets Should Stay Out of a Trust

• Tax Efficiency: For assets like retirement accounts, keeping them out of the trust and naming a beneficiary directly allows for more flexible and tax-efficient withdrawals.
• Simplicity and Speed: Direct beneficiary designations can speed up the distribution process, allowing beneficiaries to access funds more quickly without going through the trust administration process.
• Legal and Financial Considerations: Some assets may have legal or financial restrictions that make including them in a trust impractical or unnecessary.

Conclusion