What Assets Cannot Be Placed In A Trust?

Photo of Arizona houses. What assets cannot be placed in a trust?

People use trusts to hold property for future use. A trust can avoid probate (the legal process that determines who gets someone’s money and property after they die). People also use them to ensure that their intended beneficiaries receive their money and other property. Now let’s answer your question: What assets cannot be placed in a trust?

Real Estate

Real estate includes land, buildings, and other structures. Your real estate can be placed into a trust (unless there is a contract or court order that says otherwise). Your personal house should probably go into your revocable living trust. A rental property will often go into an LLC where is has more protection from lawsuits. The same goes for commercial buildings; they typically go into a legal entity such as a LLC. Then your trust can own that LLC.

However, if you are married in a community property state such as Arizona, you need to consider if the real property is your sole and separate property or if it is community property. Community property will require both spouses to make the transfer.

Personal Property

Personal property includes everything else, such as furniture, jewelry, artwork, and collectibles. You can transfer those to your revocable living trust (unless there is a contract or court order to the contrary.

If you are married, personal property that is community property requires both of you to transfer the property. If only you transfer the property to your trust, then only your one-half interest in the property is in the trust.

Businesses

If you own a business, you can probably put it into a trust. However, you need to be sure that your organizational documents and state law permit it. This is a situation where you really need to talk to an attorney before doing anything on your own.

There are lots of different considerations. For example, are you married? If so, the law may require your spouse to cooperate in transferring your business to the trust. If there is more than one owner of the business, those other owners may need to consent to the transfer.

Another consideration is what type of trust you are transferring the business to. If it is a regular revocable living trust, there is less likely to be a problem. But if you want to transfer your business to an irrevocable trust (for asset protection, for example), this can be more complicated.

Retirement Plans

You don’t actually transfer a retirement plan to a trust. (Retirement plans are already trusts, and you don’t transfer a trust to a trust.) However, you can make a trust the beneficiary of a retirement plan (assuming the retirement plan and the trust both permit this).

To make the trust the beneficiary of your retirement plans, the trust needs to include certain language. The specific type of trust that you need is called a Conduit Trust. It allows for the trustee to make Minimum Required Distributions, or otherwise to comply with the applicable laws.

Life Insurance Policies

If you own life insurance policies, you can either transfer ownership to a trust or make the trust the beneficiary. People sometimes transfer ownership to an irrevocable trust to minimize estate taxes.

There is a benefit to making the trust the beneficiary of the life insurance. For example, if you die and the life insurance goes outright to the named beneficiary, they may not be in a good position to receive a financial windfall. Maybe the beneficiary is not good at managing money. Minor beneficiaries cannot own money. And if the beneficiary is going through a divorce or bankruptcy, the inherited money could be at risk.

Transferring ownership of life insurance policies requires careful consideration.

Different Rules Apply To Different Types of Trusts

There are several different types of trusts available to help protect assets. These include revocable living trusts, irrevocable trusts, and charitable remainder trusts. Each type of trust has its advantages and disadvantages. Revocable living trusts allow the owner to make changes to the terms of the trust as needed. This flexibility makes them ideal for people who plan to continue making major decisions regarding their finances after they retire. On the other hand, revocable living trusts require more planning and paperwork. They also limit the ability of beneficiaries to access the trust assets. Irrevocable trusts do not allow for changes to the terms of a trust. Instead, they provide a fixed set of rules for how the trust will operate. This means that the person who created the trust cannot change it. Charitable remainder trusts allow donors to designate money to charity while still maintaining control over the distribution of those funds.

There is no black and white rule about what assets cannot be placed in a trust. It depends on the specific type of asset and your particular situation. It also depends on what type of trust you are considering.

A Note About Fraudulent Transfers

If you are being sued, or you have creditors, a transfer of assets to an irrevocable trust or asset protection trust could be a fraudulent transfer. It could also be criminal (depending on what state the asset is located in).

This Article Is General Information

Every person’s situation is unique. Do not rely on this article or anything you read on the internet to decide what assets cannot be placed in a trust. Seek the advice of a competent attorney. I’m attorney Paul Deloughery and I practice in Arizona. If you live in another state, you should talk to an attorney in that state.

A Note About The Name Of Our Law Firm

Yes, our law firm has a funny name. Sudden Wealth Protection Law helps prevent the next generation from squandering their inheritance. We help our clients achieve a smooth transition of their money, property, values and legacy to their heirs. You spent a lifetime accumulating what you have. You don’t want the next generation spending their inheritance immediately after you die.

Ready To Learn What Assets Can And Can’t Go Into A Trust?

If you’re still wondering what assets you cannot place in a trust, give us a call. This short article is no substitute for actual legal advice. (We want to be your estate planning attorney!) At SWPL, we work tirelessly to help our clients plan for and enjoy their retirement years. Call us at 602-443-4888 or use our convenient Contact Form. We’re here to help.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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