Which assets should you put in a living trust?

If you’ve created a trust as part of your estate plan, you’ve taken an important step to protect your assets and provide for your loved ones after you pass away.

As the ink dries on your freshly signed trust document, you may think your estate plan is settled. But there’s still an important step to complete. For your trust to work the way you want it to, you’ll need to transfer your property into it.

Transferring property to your trust is known as filling, or "funding," your trust. There are many different types of assets you can include in a trust, such as bank accounts or real estate property.

But what else can you put in your trust — and what should you avoid? Below, we’ve broken down what you can and can’t transfer to your living trust.

What is a living trust?

Let’s start with the basics: what is a trust?

In estate planning, a trust is a tool you use to transfer your assets to other people (called your beneficiaries) after you pass away. It’s similar to a last will and testament, but with a trust, you give someone else (called a trustee) the legal power to manage assets for the benefit of your beneficiaries.

A trust requires more maintenance than a will, but it also has some distinct benefits. For example, assets in a trust can skip probate, which is the court-supervised process of distributing your assets after you pass away. Distributing trust assets is also not public record, which protects the privacy of you and your beneficiaries.

There are many different types of trusts that serve different purposes, but revocable living trusts (RLTs) are the most common. “Living” means you create the trust during your lifetime. “Revocable” means you can change or cancel the trust at any point during your life, as long as you’re competent.

A living trust offers several benefits, including:

• Allowing your assets to avoid the probate process
• Protecting the privacy of you and your beneficiaries
• Helping you provide for your loved ones
  

What assets can I put in a living trust?

From your house to your financial accounts, there are many assets you’ll likely want to include in your living trust:

1. Bank accounts

There are many different types of bank accounts you can put in your living trust, including:

• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of deposit (CDs)
• Safe deposit boxes
• Non-retirement investment accounts, like brokerage or mutual fund accounts

Transferring financial accounts to your trust lets you choose how these assets are distributed to your beneficiaries. It also makes it easier for your beneficiaries to access these funds after you're gone.

Each bank or financial institution will have specific guidelines for transferring these accounts. To get the process started, you should contact your institution for instructions.

2. Real estate property

If you own real estate — like land or a house — you may want to consider placing your property into a trust. This can be especially helpful if you own property located in a different state. Not only will your in-state assets avoid probate, but your out-of-state property can also avoid ancillary probate. Ancillary probate is a secondary probate process that’s often required in each state you own property in.

To transfer your home or other real estate to a living trust, you'll generally have to prepare, sign, and register a new deed for the property. If you have a home loan or mortgage, you should also check with your lender. They may require you to fill out additional paperwork to make sure your payments aren’t interrupted.

3. Insurance policies

Your life insurance policy is an important part of your estate plan, and the death benefits can help protect your loved ones and provide them financial support after you’re gone. There are two main ways to include your insurance policy in your trust:

1. Name your trust as the beneficiary of your life insurance policy. This means that when you pass away, the proceeds of your policy will go to your trust. You can explain who should receive these proceeds in your trust documents.
2. Transfer ownership of the policy to your trust. Some people choose to set up a special trust specifically for their life insurance policy, called an irrevocable life insurance trust (ILIT). An ILIT allows you to create very specific rules around who receives the payout from your life insurance policy, and when. Transferring ownership of your life insurance policy to an ILIT can offer several benefits, like removing death benefits from your taxable estate. This process can be complicated, so you’ll want to work with a trust and estate attorney if you’re interested in creating a life insurance trust.
   

4. Stocks, bonds, and other investment assets

You can also transfer investment assets, like stocks, bonds, and mutual funds, to a living trust. To do this, you’ll have to reissue the certificates for these assets in the trustee's name, or complete a transfer document.

Your broker, a financial advisor, or an estate planning attorney can offer guidance on how to add these types of assets to a trust.

5. Tangible personal property

Physical or tangible personal property, like china dishes or furniture, can also be transferred to a living trust.

There are generally two ways to do this:

1. Create a pour-over will. A pour-over will is used to transfer assets to your trust after you die. They’re often created alongside an RLT. Unlike property the trust owns during your lifetime, the assets that “pour over” to your trust from your will must still go through the probate process.
2. Assign tangible personal property to your trust. If you want these assets to avoid probate, you can simply “assign” them to your trust during your lifetime. If you create an RLT with FreeWill, we include an “assignment of property to revocable trust” document, which includes any tangible personal assets you list.
   

6. Limited liability company (LLCs)

If you own a membership interest in a limited liability company (LLC), it’s possible to transfer your company interest (like your company stock or stakeholder shares) into a living trust. This gives the trust ownership of your shares, while you keep any powers outlined in your company’s operating agreement, like voting rights.

The operating agreement may also list specific instructions or restrictions for transferring ownership. Often, you’ll need approval from all relevant stakeholders before you can transfer company stock to your trust. Be sure to understand any provisions regarding transfers before attempting to make one.

7. Cryptocurrency

You can also transfer cryptocurrencies, like Bitcoin, to your trust. This way, your crypto assets can reap all the benefits a trust has to offer. If you decide to transfer crypto to your trust, consider choosing a trustee who’s comfortable managing these assets — or give them the authority to hire someone who is savvy in this area.

Because widespread crypto ownership is still relatively new, estate laws are still catching up. Estate attorneys who specialize in this area can help you complete the paperwork you’ll need to document the transfer.

What assets cannot be placed in a trust?

There are many assets you can put in your trust, but there are also several that you shouldn't include:  

1. Retirement assets

While you can transfer ownership of your retirement accounts into your trust, estate planning experts usually don’t recommend it. This includes individual retirement accounts (IRAs), 401(k) accounts, and 403(b) accounts.

When you transfer a retirement asset to a trust, the transaction may be treated as if you’ve cashed out the account. This can trigger income taxes on these assets, which can lessen their overall value. And if you’re not yet at the age where you can withdraw funds from your retirement account, you may have to pay a penalty for withdrawing early.

Want more control over how your retirement assets are distributed? Rather than transferring them to a trust, consider naming your trust as the beneficiary of your retirement accounts. You can then include instructions for dividing these funds in your trust documents.

2. Health savings accounts (HSAs)

Health savings accounts (HSAs) and medical savings accounts (MSAs) let you set aside money to pay for certain medical expenses, like copays or deductibles. This money comes out of your paycheck pre-tax, meaning you don’t have to pay tax on it. Since HSAs and MSAs are tax-free assets, you can't transfer them to a living trust.

You can, however, link your HSA or MSA to your trust in a different way: by naming your trust as the beneficiary of these accounts. Like with retirement assets, this gives you more flexibility in how these funds are distributed after you pass on.

3. Assets held in other countries

If you own property or assets outside of the United States, you may not be able to transfer them to a U.S.-based trust. You’ll want to discuss your options with an estate attorney licensed in the country where your international assets are located.

4. Vehicles

Vehicles can be a bit tricky when it comes to whether or not to include them in your living trust. You can transfer ownership of your cars, boats, motorcycles, campers, or other vehicles to a trust, but it may not be necessary.

There are several reasons for this:

• In some states, vehicles can bypass probate if they meet certain requirements — for example, if they’re valued under a certain amount. Make sure you understand the laws in your state, or speak to an estate attorney if you have questions.
• The value of a car or other vehicle decreases over time, and putting it in a trust won’t preserve the value.
• Insurance and registration companies may not be familiar with trust ownership, which might make it complicated to have your vehicle in the trust’s name.
• Everyday vehicles, like cars, are bought and sold regularly. If you plan to sell or gift your vehicle during your lifetime, it’s probably not worth the extra paperwork and hassle of re-titling your car in the name of your trust.

There are some exceptions to this, however. Say you own a collectible car and its value increases over time. Because this property is gaining (rather than losing) value, it can be wise to transfer it to your trust. Talking to an estate attorney can help you decide what options are right for you.

5. Cash

Physical cash can’t be placed into your trust. You can, however, put your money in a bank account and then transfer the account itself to your trust.

Create a trust to protect the people you love

Trusts are a powerful estate planning tool that offer a variety of benefits, like avoiding probate. Depending on the type of trust you have, there are many assets you can put in a trust, including your bank accounts, real estate property, and insurance policies. There are also several things that generally shouldn’t be included in your trust plans, like retirement accounts, everyday vehicles, and HSAs.

Before you can fund a trust, however, you first need to make one.

An estate planning attorney can help you get started. They can offer recommendations on what types of trusts may work best for your needs and guide you through the process of creating and funding it.

You can also consider FreeWill’s revocable living trust tool to create your trust.