7 Things You Should Not Put in a Living Trust in Nevada
When creating a living trust in Nevada, it is just as important to understand what types of assets not to transfer into the trust as it is to know what you should. A living trust can help you protect your privacy, avoid probate, and manage your assets efficiently.
However, putting the wrong assets into the trust can cause legal headaches, tax complications, or render the trust ineffective. So, what should you not put in a living trust? In short, you should not put property in a trust if you need flexibility to use it daily, special laws govern it, or you do not have complete ownership of it.
At Mills & Anderson, we guide Nevada residents through the estate planning process with a knowledgeable, experienced hand. We bring over 60 years of combined experience to every client relationship, offering personalized legal advice without handing your case off. Whether you are creating a new trust or updating an existing one, we are here to help.
What Is a Living Trust?
A living trust allows individuals to transfer asset ownership into a trust during their lifetime. Living trusts are typically revocable, meaning you can change or cancel the trust at almost any time. They also usually bypass probate, potentially saving money and time.
The trust owns the property, which a trustee manages to benefit one or more beneficiaries. You can name yourself as trustee and continue controlling your assets. After your death, a person you appoint as the successor trustee will manage or distribute the trust property according to your instructions.
What Can You Put into a Living Trust?
Answering “What should you not put in a living trust?” begins with understanding what you can place into a trust. You can transfer most property into a trust, including:
- Real estate,
- Bank accounts,
- Investment accounts,
- Personal property,
- Business interests, and
- Life insurance policies.
Given the broad range of assets you can put into a trust, it is natural to wonder what you should put in the trust and what not to put into a living trust.
What Not to Put into a Living Trust
Some assets simply do not belong in your living trust. Including them may cause tax issues, defeat legal protections, or reduce the trust’s effectiveness. Below, we explore what not to put in a revocable trust.
1. Retirement Accounts
Several types of retirement accounts enable you to deduct contributions from your income, defer taxes until you withdraw funds, or both. Those accounts include, for example:
- IRAs;
- 401(k)s; and
- Specific account types, like 403(b) plans, which apply to employees of public schools, nonprofits, and certain religious organizations.
If you transfer tax-advantaged retirement accounts to a trust, the government may consider the amount in the account to be your income in the year you transfer it. So, you may owe taxes and pay penalties on the transfer, regardless of whether you have actual, present access to the funds. Instead of transferring the account, you may want to name the trust as a beneficiary.
2. Life Insurance
You should generally avoid transferring ownership of a life insurance policy into a trust. Changing ownership can affect policy terms and may create unintended tax consequences. Instead of transferring ownership, you can name your trust as the policy’s beneficiary.
3. Motor Vehicles
Vehicles, especially standard personal-use ones, are usually better left outside the trust. Retitling can lead to insurance and registration problems, and lenders may restrict title changes for financed vehicles.
4. Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs)
Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) are special healthcare-related accounts that allow you to pay for medical care using pre-tax income. They must remain in your name as an individual.
If you transfer ownership to a trust, you may jeopardize the account’s tax-advantaged status. Like retirement accounts, you may name your trust as a beneficiary of the HSA or MSA as an alternative.
5. Everyday Bank Accounts
Transferring regular checking accounts used for day-to-day expenses into a trust can create confusion and administrative headaches. Keeping these accounts in your name with a payable-on-death (POD) designation, which allows the account to pass automatically to a named person when you die, may be a more practical alternative that still avoids probate. Some high-balance accounts, such as accounts with balances over the FDIC insurance limit or used to fund long-term care, might benefit from trust inclusion, however.
6. Accounts Under the Uniform Transfer to Minors Act (UTMA)
The Uniform Transfer to Minors Act (UTMA) and its predecessor, the Uniform Gifts to Minors Act (UGMA), authorize special accounts where designated adults manage minors’ property until they reach adulthood. You cannot legally transfer them to a trust.
Consider creating a minor’s trust if you want trust-based oversight of a minor’s inheritance or financial support. These trusts are designed to manage money for a child until they reach a specified age, such as 18 or 21.
7. Assets You Do Not Have Permission to Transfer
You cannot transfer property into a trust if you do not have full legal ownership or the explicit consent of any co-owners. Property you lack permission to transfer may include:
- Jointly owned property,
- Mortgaged real estate with due-on-sale clauses,
- Business interests governed by operating agreements or shareholder agreements that limit transfers,
- Employer-provided stock options or restricted stock before the stock vests,
- Leased items, or
- Property encumbered by liens.
Attempting to place such assets in a trust could create legal disputes or violate contract terms.
Let Mills & Anderson Help You Protect What Matters
Placing the wrong assets into a trust can undermine your estate plan and lead to unnecessary complications and expenses. At Mills & Anderson, we help clients create trusts to avoid probate, protect assets, and ensure a smooth transfer of wealth.
If you are building or reviewing your estate plan, contact Mills & Anderson today to schedule a consultation. We serve clients in Las Vegas, North Las Vegas, Henderson, Clark County, and beyond. Let us help you move forward.
