You've Been Warned: Putting This Asset In A Trust Could Cost You

Living trusts, also known as revocable trusts, are common estate planning tools that offer substantial benefits — most notably allowing assets to pass to heirs without going through probate. Since these trusts are designed to hold property during the owner's lifetime, while still allowing the owner continued access to the assets, it may seem like a good idea to transfer everything you own into one. However, that's not necessarily the case. There are certain assets you shouldn't place in a living trust, such as vehicles you use regularly — including cars, trucks, or motorcycles. Including these in a trust may not only be unnecessary but could also create some costly complications.

One reason everyday vehicles — as opposed to collectibles, which are a different story — are often among the worst assets to leave in a living trust is the potential liability exposure if the vehicle is involved in an accident. Trusts are often associated with wealth, even if they aren't necessarily a function of extensive wealth, meaning that if there is an accident, a plaintiff looking for a large payout may be more inclined to pursue a claim if they discover the vehicle is owned by a trust. Plus, if there is a lawsuit and the vehicle is titled in the name of a trust, the trust itself can get dragged into the legal case — potentially exposing other assets held inside the trust.

Beyond liability concerns, putting a vehicle into a trust can come with added costs and hassles. Signing over a vehicle title in the name of a trust can, depending on the state, potentially involve paying various fees and certain taxes. Also, when a vehicle is owned by a trust rather than an individual, insurers often treat the policy differently, which could result in higher premiums. Plus, if the coverage isn't set up correctly, or if you fail to notify the insurer of the title change, any claims could be denied – a potentially costly headache in the event of an accident.

Depending on your state, it might not even be necessary to spend the time and energy to place a vehicle into a living trust since it may not be subject to probate in the first place. Almost half of all U.S. states allow vehicle owners to name a transfer-on-death (TOD) beneficiary to whom a vehicle's ownership would pass, probate-free, after the owner's death. Even in states that don't permit TOD beneficiaries, there are still other options. Joint ownership with survivorship rights,  for example, allows multiple parties to co-own a vehicle which can then allow it to pass directly to the surviving owner in the event of the death of the other. Also, in some states, a surviving spouse may be able to bypass the formal probate process and assume ownership of a vehicle, even if they aren't listed on the title.