Some assets don’t belong in a living trust, even when a trust is the right centerpiece of your estate plan. The things you should not put in a living trust are retirement accounts, health savings accounts, life insurance and other beneficiary-designated accounts, vehicles and everyday personal property, S-corporation stock (unless the trust is specifically designed to hold it), Section 1244 small business stock, foreign real estate, most digital accounts, and business interests restricted by operating or buy-sell agreements. Each one either triggers taxes, forfeits a legal protection, or duplicates a transfer mechanism that already works without a trust.
Retirement Accounts
IRAs and 401(k)s already pass outside probate when you name a beneficiary on the account itself.1Internal Revenue Service. Retirement Topics – Beneficiary Putting a trust in that beneficiary slot is legal, but it drags the account into a tax structure built for small balances.
Trusts hit the top 37% federal income tax bracket at just $16,000 of taxable income in 2026.2Internal Revenue Service. Revenue Procedure 2025-32 An individual doesn’t reach that rate until income tops roughly $626,350. If a trust holds onto retirement distributions instead of passing them through, the tax bill can be severe.
The SECURE Act sharpens the problem. Most non-spouse beneficiaries now have to empty an inherited retirement account within 10 years of the original owner’s death.1Internal Revenue Service. Retirement Topics – Beneficiary A trust can be drafted to pass those distributions straight through to the human beneficiaries (a conduit or see-through trust), but the drafting costs money and the complexity sticks around for the life of the trust.
There are reasons to name a trust anyway: a spendthrift heir, a beneficiary with a disability, a minor child. For most families, naming people directly on the account is simpler and cheaper.
Health Savings Accounts
An HSA has one special rule you need to know. If anyone other than your surviving spouse inherits it, the account stops being an HSA the day you die. The whole balance becomes taxable income to the beneficiary in that single tax year.3Office of the Law Revision Counsel. United States Code Title 26 – Section 223 No 10-year stretch. No gradual distribution.
Naming a trust as the HSA beneficiary produces the same result, because a trust is not a spouse. A $50,000 HSA that passes to a trust generates $50,000 of ordinary income in one year, taxed either to the beneficiary who receives it or to the trust at its compressed brackets. Only a surviving spouse can roll the account into their own name and keep the tax shelter intact.3Office of the Law Revision Counsel. United States Code Title 26 – Section 223 If you’re married, name your spouse. If you’re not, the tax is unavoidable, and the trust adds cost without changing the outcome.
Life Insurance and Other Beneficiary-Designated Accounts
Life insurance, annuities, and bank or brokerage accounts with payable-on-death or transfer-on-death designations already skip probate. Routing them through a trust uses two tools where one does the job.
Life insurance paid directly to a named person is generally income-tax-free. Paid to a revocable trust, the money still avoids probate, but it becomes trust property and sits under whatever distribution rules the document contains. That can slow down access to cash that a surviving spouse or child needs for funeral costs and bills in the first few weeks.
Payable-on-death and transfer-on-death designations on bank and brokerage accounts do the same thing a trust would do here: hand the account to a named person on your death. The one case for pulling these into a trust is control over how the money gets spent afterward, such as staggered payouts to a young beneficiary. Short of that, direct designation is faster.
Vehicles and Everyday Personal Property
Cars, boats, and RVs are poor trust assets. Every state titles vehicles, so transferring one into a trust means a trip to the DMV, a new registration, and a call to your insurer. Some carriers won’t write a standard policy on a trust-owned vehicle, or they’ll require a commercial endorsement that raises your premium. Every future sale or trade becomes a trust transaction too.
Most states already offer transfer-on-death titling for vehicles, which solves probate without the ongoing paperwork. For lower-value vehicles, many states let heirs claim the car through a small estate affidavit with little or no court involvement.
Clothes, furniture, electronics, kitchen gear: not worth the effort. Putting them in a trust formally means keeping an itemized schedule current every time you buy a new couch. Most estate plans handle this with a separate personal property memorandum that lets you leave specific items to specific people without touching the trust.
S-Corporation Stock
S-corp status gives small businesses pass-through taxation, but federal law tightly limits which trusts can hold the stock. Transfer shares into a trust that doesn’t qualify, and the company’s S-election terminates. The business becomes a C-corporation and its income faces double taxation, affecting every shareholder, not just you.
Federal law allows only a short list of trust shareholders:4Office of the Law Revision Counsel. United States Code Title 26 – Section 1361 grantor trusts (eligible during the grantor’s life, and for only two years after their death), Qualified Subchapter S Trusts, and Electing Small Business Trusts. The last two each require a specific IRS election and have their own structural rules.
A plain revocable living trust usually doesn’t fit any of these categories. If you want S-corp stock in a trust, work with a tax professional to confirm the trust qualifies before you sign anything over.
Section 1244 Small Business Stock
Section 1244 of the Internal Revenue Code lets founders and early investors in small companies deduct up to $50,000 ($100,000 on a joint return) of stock losses as ordinary losses instead of capital losses. Ordinary losses offset regular income dollar-for-dollar; capital losses are capped at $3,000 per year. The gap is worth real money if the company fails.
The benefit belongs to individuals only. The statute says plainly that “the term ‘individual’ does not include a trust or estate.”5Office of the Law Revision Counsel. United States Code Title 26 – Section 1244 Move the stock into a trust and the ordinary-loss treatment is gone for good. If the shares later go to zero, the trust claims a capital loss and runs into the $3,000 annual cap. Founders holding stock in a company that might not make it should keep those shares in their own name.
Foreign Real Estate and Accounts
Property or financial accounts in another country run into a basic conflict. Many legal systems don’t recognize trusts the way U.S. law does. Civil law countries, which include most of continental Europe, Latin America, and parts of Asia, have no equivalent concept at all. Trying to put foreign property into a U.S. trust can produce conflicting legal duties, unexpected foreign tax, or a transfer the foreign government ignores.
Even common-law countries that do recognize trusts create reporting problems. The IRS requires U.S. persons with interests in foreign trusts to file specific forms, and the penalties for missing them are steep. The practical path is a local estate plan in the country where the property sits, coordinated with your U.S. trust rather than forcing the asset into it.
Digital Accounts
Online accounts are a growing share of what people own, but trusts collide here with the terms of service you accepted when you signed up. Most platforms prohibit transferring account ownership. A trust document that grants your trustee authority over digital assets doesn’t override those terms.
Most states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which gives trustees a legal path to a deceased person’s digital accounts. It has limits. A trustee can usually see what accounts exist and who you communicated with, but not the actual content of messages, unless you authorized that access in your trust documents or through the platform’s own legacy-contact settings.
For digital assets with real financial value, such as cryptocurrency exchanges, digital storefronts, or domain portfolios, the workable approach is to leave detailed access information (passwords, recovery keys, two-factor backup codes) in a secure document that your trust references, rather than trying to retitle the accounts. The trust should also explicitly grant your trustee authority over digital assets, because without that language even RUFADAA may fall short.
Restricted Business Interests
Partnership interests, LLC memberships, and closely held corporate stock usually come with transfer restrictions written into the governing documents. Operating agreements, partnership agreements, and corporate bylaws often require the other owners’ consent before any change in ownership, including a transfer to your own trust. Some buy-sell agreements automatically trigger purchase rights the moment ownership moves to an entity the other partners didn’t approve.
Pull out the governing documents and read the transfer provisions before you move anything. Getting this wrong can let your partners buy you out at a formula price or void the transfer outright. Often the cleaner move is to amend the operating or buy-sell agreement first to permit trust ownership, then make the transfer.
One Common Asset That Usually Does Belong: Mortgaged Real Estate
Real estate with a mortgage is often listed as something to avoid putting in a trust, but federal law generally allows the transfer. The Garn-St. Germain Act bars lenders from enforcing the due-on-sale clause when you move your home into a living trust, provided you remain a beneficiary of the trust and continue to occupy the property.6Office of the Law Revision Counsel. United States Code Title 12 – Section 1701j-3 Rental property or a transfer that names someone else as the sole beneficiary may fall outside that protection.
If you do make the transfer, tell your mortgage servicer after the new deed is recorded so loan statements and escrow payments continue cleanly, and update your homeowner’s insurance so the named insured matches the title.