Assets to Keep Out of a Revocable Trust: Protect Your Wealth & Avoid Costly Mistakes
Friend,
A revocable living trust is a cornerstone of savvy estate planning—offering privacy, probate avoidance, and flexibility. But like a puzzle, not every asset fits neatly into this structure. Placing the wrong items in your trust can trigger taxes, legal headaches, or even invalidate benefits. At Lamason & Associates, we guide clients to avoid these pitfalls. Let’s explore which assets to exclude and smarter strategies to protect your legacy.
1. Retirement Accounts (IRAs, 401(k)s, 403(b)s)
Why Avoid?
• Accelerated Tax Bombs: Naming a trust as the primary beneficiary of a retirement account can force heirs to empty it within 5 years (vs. the standard 10-year rule under the SECURE Act), triggering massive income taxes.
• Lost Stretch Benefits: Most non-spouse beneficiaries lose the ability to “stretch” distributions over their lifetime if the account is trust-owned.
• Complex RMD Rules: Trusts inheriting IRAs must meet strict IRS “see-through” requirements to avoid immediate taxation.
• Accelerated Tax Bombs: Naming a trust as the primary beneficiary of a retirement account can force heirs to empty it within 5 years (vs. the standard 10-year rule under the SECURE Act), triggering massive income taxes.
• Lost Stretch Benefits: Most non-spouse beneficiaries lose the ability to “stretch” distributions over their lifetime if the account is trust-owned.
• Complex RMD Rules: Trusts inheriting IRAs must meet strict IRS “see-through” requirements to avoid immediate taxation.
Smart Alternatives:
• Update Beneficiaries Directly: Name individuals (spouse, adult children) as primary beneficiaries to preserve tax-deferred growth.
• Use a Trust as Contingent: For minors or spendthrift heirs, a conduit trust can receive RMDs while shielding the balance.
• Update Beneficiaries Directly: Name individuals (spouse, adult children) as primary beneficiaries to preserve tax-deferred growth.
• Use a Trust as Contingent: For minors or spendthrift heirs, a conduit trust can receive RMDs while shielding the balance.
Pro Tip: After the SECURE Act 2.0, review inherited IRA strategies with a tax advisor—charitable remainder trusts (CRTs) can offset taxes for high-net-worth families.
2. Vehicles (Cars, Boats, RVs)
Why Avoid?
• Minimal Probate Savings: Most states allow Transfer-on-Death (TOD) titles, bypassing probate without trust complications.
• Liability Risks: If the trust-owned vehicle is in an accident, the trust’s assets could be exposed to lawsuits.
• Minimal Probate Savings: Most states allow Transfer-on-Death (TOD) titles, bypassing probate without trust complications.
• Liability Risks: If the trust-owned vehicle is in an accident, the trust’s assets could be exposed to lawsuits.
Smart Alternatives:
• Leverage TOD/POD Options: 28 states permit TOD vehicle titles—update your registration to name a beneficiary.
• Low-Value Exemptions: Many states let <$50k vehicles skip probate; check local thresholds.
• Leverage TOD/POD Options: 28 states permit TOD vehicle titles—update your registration to name a beneficiary.
• Low-Value Exemptions: Many states let <$50k vehicles skip probate; check local thresholds.
Case Study: A client avoided a 6-month probate delay by using a TOD title for her classic car, transferring it instantly to her daughter.
3. Health Savings Accounts (HSAs)
Why Avoid?
• Ownership Violations: HSAs must be owned by individuals—transferring them to a trust voids the account, triggering taxes on all funds.
• Tax Penalties: Non-spouse beneficiaries lose the HSA’s tax-free status for medical expenses, facing income taxes on the full balance.
• Ownership Violations: HSAs must be owned by individuals—transferring them to a trust voids the account, triggering taxes on all funds.
• Tax Penalties: Non-spouse beneficiaries lose the HSA’s tax-free status for medical expenses, facing income taxes on the full balance.
Smart Alternatives:
• Name a Spouse as Beneficiary: Spouses inherit HSAs tax-free and retain their use for medical costs.
• Contingent Trust for Minors: If minors are next in line, a trust can manage HSA funds until they reach adulthood.
• Name a Spouse as Beneficiary: Spouses inherit HSAs tax-free and retain their use for medical costs.
• Contingent Trust for Minors: If minors are next in line, a trust can manage HSA funds until they reach adulthood.
Pro Tip: Use HSA funds for end-of-life medical expenses to minimize taxable distributions.
4. Annuities
Why Avoid?
• Surrender Charges: Transferring ownership to a trust may trigger fees (e.g., 7% penalties for early withdrawals).
• Contract Restrictions: Many annuities prohibit ownership changes—violating terms could void death benefits.
• Surrender Charges: Transferring ownership to a trust may trigger fees (e.g., 7% penalties for early withdrawals).
• Contract Restrictions: Many annuities prohibit ownership changes—violating terms could void death benefits.
Smart Alternatives:
• Beneficiary Clauses: Keep the annuity in your name but name the trust as a beneficiary for controlled payouts.
• Split Ownership: For deferred annuities, assign partial ownership to a spouse to avoid probate.
• Pro Tip: Fixed-indexed annuities often have flexible terms—review contracts with a fiduciary advisor.
• Beneficiary Clauses: Keep the annuity in your name but name the trust as a beneficiary for controlled payouts.
• Split Ownership: For deferred annuities, assign partial ownership to a spouse to avoid probate.
• Pro Tip: Fixed-indexed annuities often have flexible terms—review contracts with a fiduciary advisor.
5. Day-to-Day Cash & Checking Accounts
Why Avoid?
• Banking Hurdles: Trust-owned accounts require extra paperwork for checks, debit cards, and online payments.
• FDIC Limits: Trust accounts have separate $250k FDIC insurance caps per beneficiary, complicating large cash holdings.
• Banking Hurdles: Trust-owned accounts require extra paperwork for checks, debit cards, and online payments.
• FDIC Limits: Trust accounts have separate $250k FDIC insurance caps per beneficiary, complicating large cash holdings.
Smart Alternatives:
• POD Designation: Add a payable-on-death beneficiary to personal accounts for instant transfers.
• Hybrid Approach: Keep 10k–10k–20k in a personal account for expenses; place larger sums in a trust.
• POD Designation: Add a payable-on-death beneficiary to personal accounts for instant transfers.
• Hybrid Approach: Keep 10k–10k–20k in a personal account for expenses; place larger sums in a trust.
6. Low-Value Personal Items (Furniture, Clothing)
Why Avoid?
• Administrative Overkill: Updating trust documents for every heirloom or collectible is time-consuming.
• No Probate Advantage: Most states exempt <50k–50k–100k in personal property from probate.
• Administrative Overkill: Updating trust documents for every heirloom or collectible is time-consuming.
• No Probate Advantage: Most states exempt <50k–50k–100k in personal property from probate.
Smart Alternatives:
• Personal Property Memorandum: Attach a separate, updatable list to your will specifying who receives sentimental items.
• Gifting Strategy: Donate items with emotional value during your lifetime to avoid disputes.
• Personal Property Memorandum: Attach a separate, updatable list to your will specifying who receives sentimental items.
• Gifting Strategy: Donate items with emotional value during your lifetime to avoid disputes.
Safeguard Your Legacy with Precision
Safeguard Your Legacy with Precision
A revocable trust is powerful—but only when paired with the right assets.
• #30DayLegacy Challenge: Tackle beneficiary updates, TOD titles, and HSA strategies in 30 minutes a day.
• Comprehensive Estate Plan Review: Align trusts, wills, and beneficiary designations with zero contradictions.
A revocable trust is powerful—but only when paired with the right assets.
• #30DayLegacy Challenge: Tackle beneficiary updates, TOD titles, and HSA strategies in 30 minutes a day.
• Comprehensive Estate Plan Review: Align trusts, wills, and beneficiary designations with zero contradictions.
Don’t Let a Misstep Undermine Your Plan: Schedule a consultation to audit your assets and fortify your legacy. Join the #30DayLegacy and get started today!
Stay Woke!
L.A. Mason, Chief Strategist
#30DayLegacy #EstatePlanningIsSexy #BlackLuxury
#BlackGirlMagic #RadicalSelfCare #StayWoke
#30DayLegacy #EstatePlanningIsSexy #BlackLuxury
#BlackGirlMagic #RadicalSelfCare #StayWoke