A few months ago, a tech executive came into our Manhattan office with a clear goal. He had created a revocable living trust online and wanted our firm to help him “fund it” by transferring his assets. On his list were his apartment, a brokerage account, and two other items: his multi-million dollar 401(k) and a significant number of unvested Restricted Stock Units (RSUs) from his employer. He was surprised when I told him that moving those last two assets into his trust would be a catastrophic financial mistake.
A trust is a powerful tool for legacy stewardship, but it isn’t a universal receptacle for every asset you own. Knowing what to keep out of a trust is just as important as knowing what to put in. Placing the wrong asset in a trust can accelerate taxes, violate contracts, or create unnecessary legal tangles. It’s about precision, not just accumulation.
The Problem with Pre-Tax Retirement Accounts
The single most common and costly mistake I see is the attempt to re-title a traditional IRA or 401(k) in the name of a trust. These accounts—along with 403(b)s and similar tax-deferred plans—are fundamentally contracts between you and a financial custodian, governed by strict IRS rules.
When you attempt to change the owner of your IRA from yourself to your trust, the IRS does not see it as a simple transfer. It sees it as a full distribution of the entire account balance to you. The result is an immediate and often staggering income tax bill on money you never intended to withdraw. You could trigger a tax liability of hundreds of thousands of dollars with a single incorrect form.
The proper way to integrate these accounts with your estate plan is not by changing the owner, but by naming the trust as the beneficiary. This is a critical distinction. Upon your passing, the retirement funds can flow to the trust for management on behalf of your heirs. Even this requires careful drafting to align with federal law and your family’s specific needs, but it avoids the disastrous tax consequences of an improper lifetime transfer.
Assets with Unique Ownership Rules
Beyond retirement accounts, a handful of other assets have their own sets of rules that make them ill-suited for direct trust ownership. This is not because of tax law, but because of state regulations or contractual limitations.
Professional Practices
As an attorney, I own a professional corporation. I cannot simply place the ownership shares of Morgan Legal Group, P.C. into my family’s revocable trust. New York law, like that of most states, requires that shares of professional corporations be owned only by licensed members of that profession. The same rules apply to physicians, architects, and other licensed professionals. Placing these shares in a standard trust would violate state licensing laws and could jeopardize the practice itself.
Cooperative Apartments
While you can and often should place real estate into a trust, a New York City co-op is a unique asset. You do not own real property; you own shares in a corporation that entitles you to a proprietary lease. The co-op board has the authority to approve or deny any transfer of those shares—including a transfer to your trust. Many boards have their own stringent requirements for trust language or may refuse the transfer altogether, making it a matter of negotiation rather than a simple right.
U.S. Savings Bonds
These are governed by federal Treasury rules. While it is possible to re-title savings bonds, the process can be cumbersome. Naming a beneficiary directly on the bond itself is often a more straightforward and effective way to ensure they pass to your intended heir without probate.
Your Personal Authority vs. Your Property
Finally, a category of legal documents cannot be placed in a trust because they are not property. They are grants of personal authority. I’m referring to your Power of Attorney and your Health Care Proxy.
A trust’s purpose is to hold and manage assets—your property. A Power of Attorney, by contrast, is a document in which you, the principal, grant an agent the authority to make financial and legal decisions on your behalf. A Health Care Proxy grants an agent the authority to make medical decisions. These are delegations of your personal power, not transfers of your things.
These documents stand alone. They are governed by distinct statutes, such as New York General Obligations Law, Article 5, Title 15, which details the requirements for a valid power of attorney. You cannot put your “power” into a trust, any more than you could put your driver’s license or your passport in it. They are instruments of agency, essential to any plan, but entirely separate from the stewardship of assets within a trust.
A deliberate estate plan accounts for the unique nature of each asset. The goal is not simply to fill a trust, but to ensure every part of your legacy—from retirement accounts to personal authority—is handled with the prudence and foresight it deserves. A prudent first step is to create a detailed schedule of your assets. We often begin our work with clients by conducting a full asset review to determine the appropriate stewardship for each piece of their legacy.
