What NOT to Put in Your Arizona
Revocable Living Trust &
What to Do Instead
Richard Keyt (Rick, the father at 480-664-7478) and his son, former CPA Richard C. Keyt (Ricky at 480-664-7472), are Arizona estate planning attorneys with 294 5-star Google reviews and 407 5-star Google, Facebook & Birdeye reviews. They want to prepare a custom estate plan for Arizona residents that protects their most valuable assets – their loved ones. Call, email, or book a free office, phone or Zoom video meeting.
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Assets You Should Not Put in a Trust
(8 Critical Exclusions)
A revocable living trust is one of the most powerful estate planning tools available to Arizona residents. Done right, it lets your family avoid Arizona probate court entirely, keeps your financial affairs private, and ensures your assets pass to the people you love quickly and without court interference.
I have drafted revocable living trusts for over 1,000 Arizona families. In that time, I have seen the same expensive mistake come up over and over: people—often guided by well-meaning but incomplete advice—put the wrong assets into their trust. Sometimes the result is an unexpected tax bill. Sometimes it voids a critical legal protection. Sometimes it just creates unnecessary paperwork and headaches for the family left behind.
This article gives you a plain-English guide to the asset types that generally do not belong inside your revocable living trust—and tells you what to do with each one instead.
One important note before we start: Your situation is unique. The guidance below reflects general principles of Arizona and federal law. The right strategy for any specific asset depends on the full picture of your estate—your family, your tax situation, your goals. Before you change how any asset is titled, please talk to an Arizona estate planning attorney.
1. Retirement Accounts: IRAs, 401(k)s, 403(b)s, SEP-IRAs, and Similar Plans
This is the single most important item on this list. Never retitle a retirement account into your revocable living trust.
Here is why this matters so much: The IRS treats a retirement account as a tax-deferred arrangement tied to you personally. The moment you transfer ownership of an IRA, 401(k), 403(b), 457(b), SEP-IRA, SIMPLE IRA, or similar account to your trust, the IRS considers that a complete withdrawal. You owe income tax on the entire account balance in that tax year. If you are in your 60s with a $500,000 IRA, that could mean a six-figure tax bill—in a single year—for a move that accomplished nothing useful.
Retirement accounts are not probate assets in the first place. They already pass outside of probate through a beneficiary designation. The proper way to connect your retirement accounts to your estate plan is to name a primary beneficiary directly (typically your spouse, children, or other individuals) and name a contingent beneficiary as a backup in case your primary beneficiary does not survive you.
There are circumstances where it makes sense to name your revocable living trust as the beneficiary of a retirement account—for example, if you have minor children and want the trust to manage distributions for them, or if a beneficiary has a disability. But that decision requires careful tax planning and should never be done without guidance from a qualified attorney.
Bottom line: Keep retirement accounts out of your trust. Coordinate them with your trust through beneficiary designations instead.
2. Health Savings Accounts (HSAs)
Health Savings Accounts are another tax-favored account that must stay in your name personally. Under federal law, an HSA is an individual account—it cannot be held in trust. Attempting to transfer an HSA to your revocable living trust would cause the account to lose its HSA status immediately, and the entire balance would be treated as a taxable distribution.
Like retirement accounts, HSAs pass through a beneficiary designation. Name your spouse as beneficiary if you are married—a surviving spouse can roll the HSA into their own HSA and preserve all the tax benefits. If you name anyone other than a spouse as beneficiary, the balance is included in their taxable income in the year you die.
Bottom line: HSAs cannot be titled in a trust. Name a beneficiary directly on the account.
3. Life Insurance Policies
There is an important distinction here that confuses many people.
The death benefit of a life insurance policy—the money your beneficiaries receive when you die—already passes outside of probate through a beneficiary designation. You do not need to put a life insurance policy inside your revocable living trust for the death benefit to avoid probate.
Transferring ownership of a life insurance policy into a revocable living trust is generally unnecessary and can create complications with the insurer. It provides little practical benefit because a revocable living trust does not shelter the policy from estate taxes (since you still control it), and it does not otherwise improve how the benefit is delivered.
What you can—and in many cases should—do is name your revocable living trust as the beneficiary of the life insurance policy. This is useful when you want the trust to hold and manage the proceeds for minor children rather than having the money paid in a lump sum to a guardian, when you want to protect the proceeds inside an asset-protected trust for your adult children's benefit, or when your primary beneficiary has special needs, a disability, or a creditor problem.
There is a separate planning tool called an Irrevocable Life Insurance Trust (ILIT) that actually removes the policy from your taxable estate for federal estate tax purposes. An ILIT is not a revocable living trust—it is an entirely separate legal structure that makes sense primarily for larger estates.
Bottom line: Do not transfer ownership of a life insurance policy into your revocable living trust. Instead, designate your trust as the beneficiary if you want the proceeds managed by the trust at your death.
4. Vehicles and Automobiles
In most cases, everyday vehicles—cars, trucks, SUVs—are not good candidates for your revocable living trust.
Here is the practical reality: To transfer a vehicle into your trust, you need to retitle it with the Arizona Motor Vehicle Division. That retitling can create complications with your auto insurance carrier, who may not recognize the trust as a named insured or may require policy changes. If you are in an accident and the vehicle is in the trust's name, coverage disputes can arise.
Moreover, Arizona law already provides a relatively simple mechanism for transferring vehicles after death.
The Arizona Department of Transportation's Motor Vehicle Division (MVD) has a form called Beneficiary Designation that vehicle owners can complete and submit to the DMV. This form causes the title of a vehicle registered with MVD to transfer automatically on the death of the vehicle's owner to the beneficiary or beneficiaries named in the Beneficiary Designation. This causes the title to change automatically without the need for a probate.
The Beneficiary Designation form is located at
https://apps.azdot.gov/files/mvd/mvd-forms-lib/96-0561.pdf
Unfortunately this form can be used only when there is one owner of the vehicle. If you have two people named on the title of your Arizona vehicle we recommend changing the title to one owner and then that person can complete the beneficiary car title to avoid probate.
There are exceptions. Expensive collector cars, vintage vehicles, or recreational vehicles worth a significant amount may deserve more careful planning. But your everyday driver? Generally not worth the hassle of putting it in a trust.
Bottom line: Leave everyday vehicles out of your trust. Talk to an attorney about expensive or collector vehicles that may warrant special planning.
6. UTMA and UGMA Custodial Accounts
A Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) custodial account is a special type of account that holds assets for a minor child. These accounts are created under a specific legal structure—they are owned by the minor, managed by a custodian until the child reaches adulthood, and cannot be transferred to a trust.
By definition, a UTMA/UGMA account already belongs to the minor child. Attempting to retitle it into your trust would be legally ineffective because you do not own the account—the child does. The custodian manages it on the child's behalf, but the underlying assets are the child's property.
If you want to set aside assets for a child's future in a more flexible and controlled way, a testamentary trust or a living trust sub-trust for the benefit of the child is almost always a better planning strategy than a UTMA/UGMA account—because a trust lets you control when the child receives the money and under what conditions, rather than handing everything over automatically at age 18 or 21.
Bottom line: UTMA/UGMA custodial accounts cannot be retitled into your trust. The child already owns them.
7. Foreign Real Estate
If you own real property located outside the United States, transferring it into your Arizona revocable living trust may be ineffective—or worse, may conflict with the property laws of the country where the property is located.
Many countries do not recognize U.S.-style revocable living trusts. Some foreign jurisdictions require that real estate pass according to their own laws, which may include forced heirship rules, local probate processes, or requirements that title be held in specific ways. A deed from you to your Arizona trust may simply not be recognized under the law of the foreign country where the property sits.
If you own foreign real estate, you need legal advice from an attorney familiar with both Arizona estate planning and the property laws of the relevant country. There may be separate planning steps needed—potentially including a separate legal structure in that country—to ensure the property passes as you intend.
Bottom line: Foreign real estate requires specialized planning that goes beyond your Arizona revocable living trust. Get country-specific legal advice.
8. Your Active Personal Checking Account
This one is more of a practical caution than a hard legal prohibition.
Some estate planning attorneys recommend funding all bank accounts—including your primary checking account—into your revocable living trust. Others advise keeping your active personal checking account in your own name for day-to-day convenience and funding it into the trust only if the balance grows large.
Here is the concern: Some banks, payment processors, and merchants treat a trust-titled account differently than a personal account. Direct deposit from an employer, certain government benefits like Social Security, automatic payments, and debit card transactions sometimes work less smoothly when the account is in the name of a trust rather than an individual.
Social Security, in particular, requires that benefits be deposited into an account held in your personal name—not in the name of a trust. If you transfer the account that receives your Social Security into the trust, you could disrupt those payments.
A practical solution: Keep a modest personal checking account in your own name for daily transactions and Social Security deposits. Our Recommendation: Owners of the bank account can sign the bank's pay on death form that names the trust as the beneficiary of the account if the sole owner or both owners die.
Maintain larger savings and investment accounts in your trust.
Bottom line: Your active personal checking account and Social Security deposit account should generally stay in your individual name, not in your trust.
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Call or email Richard Keyt, the father
Direct phone: 480-664-7478
Email: [email protected]
Call or email Richard C. Keyt, the son
Direct phone: 480-664-7472
Email: [email protected]