If you own rental properties, run a business, or have money invested in retirement and brokerage accounts, you’ve probably considered setting up a living trust.

But not every asset belongs in a living trust. Transferring certain assets without checking the rules could trigger taxes or create insurance problems. It could also affect how your beneficiaries inherit your investments.

Effective legacy planning goes beyond creating a trust. That’s especially important when it comes to estate planning for landlords, traders, and business owners. You need to determine which assets to transfer, when to update beneficiary forms, and where to make additional plans. 

Let’s walk through seven common assets and how I’d approach each one.

Key Takeaways

• A living trust can be part of a comprehensive estate planning strategy for landlords without holding every asset. 
• A beneficiary designation allows an asset to pass to your trust without transferring ownership during your lifetime.
• Retirement accounts and Health Savings Accounts generally stay in your name.
• Transferring annuities, business interests, or jointly owned property without reviewing restrictions can create tax implications and costly problems.
• Estate planning for small business owners and investors should also include preparing successor trustees to manage the investments and businesses they inherit.

Watch as I explain the 7 Assets. And subscribe to my channel if you want more tips about estate planning for real estate investors, stock traders, and business owners.

Does Every Asset Belong in a Living Trust?

No. A properly funded living trust doesn’t need to own every asset. Some assets belong in your trust. Other parts of your estate should remain in your name, with beneficiary designations specifying family members who inherit them.

So, what’s the difference between a living trust and beneficiary designation?

What’s the Difference Between a Living Trust and a Beneficiary Designation?

A revocable trust provides instructions for managing and distributing assets it controls. A beneficiary designation identifies who receives an account or policy when you die.

A beneficiary form can override your trust’s distribution instructions, making it important to use both.

Consider an investor who owns five rental properties, an S-Corporation, a retirement account, and life insurance.

Rental property estate planning should look at how each asset is owned. It should also account for how ownership interests can be transferred to a trust and who will inherit the assets.

The goal isn’t to put everything into one legal vehicle. It’s to help your family avoid probate processes and establish a clear path for inheritance.

Let’s look at seven assets and how to handle each one.

1. Should You Put Your 401(k) or IRA in a Living Trust?

No. Transferring a 401(k), IRA, or other qualified retirement account into your living trust could trigger taxes.

Instead, name beneficiaries directly. Naming your spouse may offer tax advantages, including rollover options.

When Should You Name a Trust as a Retirement Account Beneficiary?

A trust can help control when your children inherit retirement savings, especially if you’re concerned about spending habits or creditors. Just make sure they abide by the time limits.

However, under the SECURE Act, many non-spouse beneficiaries must empty inherited retirement accounts within 10 years, although exceptions apply.

Also, ensure your trust is drafted correctly. An improperly drafted trust could trigger unfavorable tax penalties.

I would suggest having an estate planning lawyer review your trust before naming it as a beneficiary to avoid costly mistakes.

2. Should You Put a Health Savings Account in Your Trust?

You shouldn’t transfer ownership of a Health Savings Account (HSA) into your living trust because HSAs have special tax rules.

If your spouse inherits your HSA, they can treat it as their own.

If someone else inherits it, the account loses its HSA status, and its value becomes taxable under the applicable rules.

Why name your trust as the beneficiary?

Control.

A trust can help you control when your children or other beneficiaries receive the money. However, it won’t preserve the HSA’s tax advantages.

Review your beneficiary form with your estate planning attorney to determine which path best fits your estate plan.

3. Can You Transfer an Annuity Into a Living Trust?

Possibly, but don’t make that transfer until you’ve reviewed the annuity contract.

You can hold some annuities in a revocable grantor trust without losing their tax-deferred treatment.

Others have restrictions that complicate ownership changes.

Federal tax rules generally treat annuities owned by non-natural persons differently, although exceptions exist.

If you transfer an annuity into the wrong type of trust, you could trigger taxable income or interfere with the contract’s intended tax treatment.

A revocable living trust and an irrevocable non-grantor trust aren’t interchangeable.

Before changing ownership, review the annuity contract and confirm how the transfer affects its tax status.

Naming your spouse as the primary beneficiary and your trust as the backup beneficiary may better align with your goals.

4. Should Your Living Trust Own Your Life Insurance Policy?

A living trust can own a life insurance policy or receive its proceeds as a beneficiary, but each option has different implications.

One mistake I frequently see is investors forgetting to update their life insurance beneficiaries.

Imagine creating a trust that gradually distributes assets to your children, but naming them directly as beneficiaries of a $2 million life insurance policy.

When you pass away, they may receive the proceeds immediately, bypassing your trust’s instructions.

Should You Name Your Living Trust as a Life Insurance Beneficiary?

If you want your trustee to control the distribution of life insurance proceeds, name your trust as the beneficiary.

However, a revocable living trust generally doesn’t remove the proceeds from your taxable estate.

If state and federal estate taxes are a concern, consider an irrevocable life insurance trust (ILIT), which has different ownership and tax rules.

Your decision depends on whether you want to control distributions, address estate taxes, or both.

5. Should You Put Cars, Boats, and Other Vehicles in a Trust?

You may be able to transfer vehicle ownership into your living trust, but I don’t recommend it because of potential complications involving:

• Title and registration requirements
• Insurance coverage
• Outstanding loans or financing
• State transfer fees

A transfer-on-death vehicle title may be a simpler option. Some states also offer simplified procedures for transferring vehicles after death.

A personal property memorandum may document your wishes, but it doesn’t replace legal title-transfer requirements.

Review your state’s laws and the type of vehicle you own with a qualified estate planning law firm before making changes.

6. Can You Put S-Corporation Stock in a Living Trust?

Yes, but you need to follow specific rules.

If you own an S-Corporation or an LLC taxed as one, you may be able to transfer your ownership interest into a living trust.

The problem is that the IRS limits who can own shares in an S-Corporation. If your trust doesn’t meet those rules after your death, your business could lose its S-Corporation tax status and face higher taxes.

Certain trusts, including Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs), can help prevent this problem.

Have your attorney review your strategy and estate planning documents to ensure they meet the requirements.

But there is another consideration.

Who Will Run Your Business When You’re Gone?

You should also consider long-term succession planning before making your decision. Succession planning is more than who inherits your business. You also need someone qualified to run it.

I’ve seen business owners appoint successor trustees who understand estate administration but have no experience managing employees, contracts, or daily operations.

Consider naming a separate trustee or business manager and documenting their responsibilities in your succession planning strategy.

7. Should You Transfer Jointly Owned Property Into a Trust?

Not until you’ve reviewed the ownership agreement.

If you own rental properties with partners or hold investments through an LLC, your operating agreement may restrict or require another member’s consent before transferring assets.

For example, transferring your 50% LLC membership interest into a living trust could trigger buy-sell provisions or even a forced sale.

The same risks apply to partnership interests and restricted business stock.

Before transferring ownership, review the governing documents to avoid costly consequences.

Frequently Asked Questions

What Assets Should Go in a Living Trust?

Common personal assets to include in your living trust include your personal residence, checking and savings bank accounts, taxable investment accounts, and valuable personal belongings such as jewelry or collectibles. 

What Assets Don’t Belong in a Living Trust?

You shouldn’t transfer retirement accounts or health savings accounts (HSAs) into a living trust. Doing so could trigger tax consequences. Instead, use beneficiary designations to determine who inherits these accounts.

Avoid Costly Planning Mistakes

Comprehensive estate planning goes beyond creating a living trust. It’s about making sure your assets pass to the right beneficiaries while giving your family peace of mind.

Schedule a free 45-minute Strategy Session with Anderson Advisors to align your assets with your estate planning goals.