Several Americans still have no estate planning documents, according to Trust & Will. They have conducted a national survey of 5,000 US adults from January 28 to February 5, 2026, and its result says that 56% of US adults have no will, trust, medical POA, financial POA, or HIPAA authorization. This data remains unchanged from the previous year, with 55% of individuals having no wills or trusts.
Managing assets depends on your overall estate plan. According to a Beaumont probate lawyer, probate is the legal process used to settle the debts of a deceased person and transfer their inheritance to the heirs and named beneficiaries. Understanding how it works can help you determine whether an asset should be placed in trust.
The downside of the probate process is its lengthy delays. A revocable living trust can resolve the issue since it avoids probate and allows assets to go directly to beneficiaries.
It is common knowledge that trusts achieve their full potential only when properly funded. Putting the right kind of assets in a trust helps to avoid the risk of a potential increase in taxes and the loss of legal safeguards. A wrongly placed asset could lead to delays that could compromise the trust's objectives. That’s why it’s important to know what assets should not be in a trust, not only what to put in.
Let’s discuss how trust operates and the suitable assets that should be placed in it.
Why the wrong assets in a trust cause problems
Some assets already have their own natural transfer setup, and moving them into a trust can end up overriding those rules in a way that may cost beneficiaries some money or at least slow down access.
The IRS and state laws often look at certain assets, mainly retirement accounts and other tax-advantaged savings types, as belonging to the individual, not to a legal entity. Once those accounts are titled to a trust, the tax treatment shifts immediately.
Retirement accounts: The highest-stakes mistake
An IRA, 401(k), or 403(b) transfer that goes directly to a trust is treated as a distribution. That means the full account balance is treated as taxable income in the year of transfer. For a $500,000 IRA, that could push a beneficiary into the highest federal tax bracket.
The SECURE Act changed the rules further
Many beneficiaries were able to take withdrawals from their IRA in a controlled manner that was spread throughout their lifetime until the year 2020. After the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, said option was not possible anymore. The ACT required most non-spouse beneficiaries to have drawn the funds within a ten-year period.
But if a trust is named instead of a person, the rules are stricter. A trust that doesn’t count as a “see-through” trust under IRS guidelines may have to distribute the entire account within five years. Even the see-through trusts aren’t totally safe from a faster timeline. These trusts have their required distribution schedules compressed, which means they reach higher tax rates faster.
What to do instead
The most favorable arrangement is normally to directly include individuals as the beneficiaries. This configuration should be regularly reviewed and updated after marriage, the breakdown of marriage, or the death of any of the named beneficiaries. For those who want to steer how a minor or someone financially vulnerable receives the money, it’s smart to talk to an estate planning attorney about naming the trust as a backup beneficiary with a properly built accumulation trust.
Assets with no transfer option at all
Certain assets are legally non-transferable into a trust in the first place. Social Security benefits fall into this category, along with cash held outside a bank account. Neither can be assigned to a trust directly under federal rules governing how those benefits and funds are held.
Health savings accounts and medical savings accounts
Health savings accounts and medical savings accounts fall under two pre-existing schemes of tax-beneficial regulations. They function as individual trusts under federal law. Placing one inside another trust is not allowed.
The alternative is to name a beneficiary on the account directly. A surviving spouse is allowed to treat an HSA left to them as their own, which prevents the account from becoming taxable when transferred. An HSA ceases to be such once it has an owner other than a spouse. Usually, the beneficiary of the account must pay tax on the fair market value of the account in the year the account owner died. If the estate of the deceased person is the owner, it is likely that the HSA account's value will be indicated when the decedent's final income tax return is filed. That limitation is worth understanding before assuming an HSA belongs in a broader estate plan.
Life insurance policies
A life insurance policy already bypasses probate when it has a named beneficiary. The death benefit goes directly to that person without court involvement. Transferring the insurance policy to a revocable trust does not bring any advantages to an individual's estate planning process and might actually hinder process time.
Exceptions may include an Irrevocable Life Insurance Trust (ILIT), which is a separate scheme established to help in cutting down on the cumbersome death benefit that could be counted in the taxable estate of a very wealthy person. This is a deliberate structure, not the same as dropping a policy into a general revocable trust. For most people, the simplest approach is naming beneficiaries on the policy directly and reviewing them after major life events.
Motor vehicles
Putting a car, truck, or motorcycle into a trust can create a title issue that many people do not expect. In most states, they will want the vehicle retitled so it shows up in the trust name. That detail can mess with insurance coverage. Some insurers just refuse to cover a vehicle held in trust, or they want extra endorsements that cost more.
If a trust-owned vehicle is in a crash, the lawsuit could pull in the trust itself and the trust's assets. Many cars below a certain value level do not have to go through probate in many states, so the original reason for putting them in a trust in the first place is weakened.
Practically, a transfer-on-death (TOD) vehicle title is often a better route, since it is available in most states. You can also handle this type of asset with a straightforward clause in a will.
Jointly owned accounts and property
When someone has property with another person under joint tenancy with right of survivorship, it passes straight to the remaining owner if one person dies. There’s no probate process and also no trust that’s strictly required. But once you place that kind of property into a trust, it can effectively unravel the joint tenancy, and that’s where you can get some unintended results for the surviving person. It might even set off a property tax reassessment in certain states.
This kind of issue also shows up with joint bank accounts. If the account is created with a right of survivorship, the surviving account holder automatically gets the money. If instead you use a payable on death, or POD, designation for an individual account, you can usually reach a similar outcome without needing the joint ownership setup. Either approach can make trust inclusion unnecessary.
The coordination problem most estate plans miss
One of the issues where many people still make big mistakes in estate planning concerns the role that beneficiary designations and trusts play. It is immaterial how well the trust is constructed but if for instance, a retirement account still holds an ex-spouse’s name as the beneficiary, then the latter will receive the money. In each and every case, the account holder directs who is to receive the money and that decision prevails against the imposed trust designs.
That means the practical work of estate planning extends beyond just funding a trust correctly. It is important to review all beneficiary designations made at the account level, all payable on death (POD) or transfer on death (TOD) forms, all assets held in joint ownership structures, etc.
Putting it together
What makes trusts valuable is the control of the transfer of assets, which people can exercise. That control only holds when the trust is funded with assets that actually belong in it. It is common when establishing a trust that certain types of assets, including retirement accounts, HSAs, life insurance policies, vehicles, and jointly owned assets, have specific transfer mechanisms that are often more effective than using a trust. In that situation, it would only be counterproductive to try to transfer such assets to the trust, as it would simply bring back the very problems that made the settlor want a trust in the first place.
Estate planning research consistently shows that unfunded or improperly funded trusts are among the most common reasons an estate plan fails to work as intended. The document is only as effective as the assets properly titled within it. Reviewing each asset category separately and coordinating beneficiary designations with the broader plan are what make a trust function as intended.
