What assets should not be placed in a revocable trust?

While a revocable trust by One Pacific Trust is a very effective strategy in estate planning, there are certain assets that are not appropriate to hold in a living revocable trust. Knowing what should not go into the trust makes the complications fewer and the process for the management of the living trust smoother.

• Retirement Accounts: Transfers of tax-deferred accounts, such as an IRA, 401(k), or 403(b), to a revocable trust may result in some very unfavorable and unexpected tax consequences. The transfers of ownership in these accounts will have the effect of immediately distributing and taxing the account, and possibly the entire account balance. You may name the trust as beneficiary for distribution controls upon your death.
• Health Savings Accounts and Medical Savings Accounts: Much like retirement accounts, these cannot be held in trust. If transferred, there could be a reduction in tax burden and benefits. Instead, name a beneficiary for these accounts.
• Vehicles: While a vehicle can be transferred to a trust, it is often not practical. Transfers of vehicles involve significant amounts of paperwork, potential problems with sales tax, and issues with insurance coverage. In general, it is often far easier to leave the vehicles outside of the trust and deal with them separately in a will.
• Cash and Personal Checking Accounts: Generally speaking, it is not particularly necessary to transfer personal checking or savings accounts into a trust. Typically, these are transaction and expenditure accounts, better remaining outside of a trust, as access and management by the owners become more cumbersome after having been transferred into it.
• Some states have quirky legislation regarding the transfer of property into a trust concerning homestead exemptions and property taxes. In this regard, one will have to consult with an attorney to ensure that all legislation at the state level is complied with.

You can maximize the power of a revocable trust and avoid the common traps by carefully choosing what you put in and what you keep out.