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The Top 5 Assets That Should Stay Out of Your Living Trust – Avoid Costly Mistakes in Retirement Planning

by Eric Seyboldt 

Given today’s unpredictable economic climate, with inflation and market volatility challenging even the most robust retirement plans, safeguarding your assets is more critical than ever. A living trust is an effective estate planning instrument, offering privacy, control, and probate avoidance. However, wrongfully including certain assets in a trust can lead to significant financial losses, legal issues, and tax repercussions that defeat the trust's purpose. Let’s delve into the top five assets that should remain out of a living trust and the potential risks involved.

Retirement Accounts (IRA, 401(k), 403(b)): A Tax Trap

While adding your retirement accounts to a living trust might seem like a good idea for simplifying asset transfer, it can trigger severe tax consequences. Transfers of IRAs or 401(k)s into a trust might prompt the IRS to consider it a full withdrawal, resulting in an immediate taxable event. This could mean that you or your heirs face income tax on the entire balance, possibly pushing you into higher tax brackets. Rather than preserving wealth, you might end up significantly diminishing your retirement savings, leaving less for your beneficiaries. The better strategy is to designate direct beneficiaries, ensuring they receive the assets without substantial tax losses.

Health Savings Accounts (HSA) and Medical Savings Accounts (MSA): Penalties Waiting to Happen

HSAs and MSAs offer crucial tax benefits when used correctly, allowing savings for healthcare expenses to grow tax-deferred. However, including these accounts in a living trust can lead to the loss of their tax-advantaged status, causing penalties and immediate taxation. This means the funds you intended for future medical costs could diminish quickly. Instead, directly designate beneficiaries for these accounts to avoid financial risks.

Life Insurance Policies: Adding Complexity Without Benefit

Life insurance policies are inherently designed to pass directly to beneficiaries outside of probate, bypassing the need for a living trust. Including them in a trust can introduce unnecessary legal and administrative hurdles, complicating a simple process. It might even delay payouts to your beneficiaries when quick access to funds is needed. Regularly review and update life insurance beneficiary designations to ensure smooth transitions without involving trust complexities.

Vehicles: A Costly Paperwork Burden

While high-value collectible vehicles might be considered for a living trust, most everyday cars and trucks are not suitable. Transferring vehicles into a trust can be cumbersome, as state laws often require retitling, fees, and administrative efforts. Moreover, vehicles depreciate quickly, making them poor candidates for long-term estate preservation. If a vehicle's value is low, it might not be worth the effort and expense to place it in a trust. Instead, use simpler methods such as a will or title transfer upon death.

Cash and Checking Accounts: Risking Inaccessibility

One of the biggest errors is moving cash or checking accounts into a living trust. This can create liquidity issues, leaving your funds inaccessible when needed most. In emergencies or for daily expenses, you might experience delays in accessing your own money, and your heirs might face unnecessary complications after your death. A better approach is to use Payable on Death (POD) designations, guaranteeing smooth and immediate transfers of funds without legal delays.

In retirement planning, where every choice is important, understanding which assets to exclude from a living trust is vital for preserving wealth for yourself and future generations. Poor decisions can result in costly tax penalties, diminished inheritance, and avoidable legal issues. With the right strategy, your assets can transfer seamlessly to your heirs, free from financial errors. In these economically uncertain times, precise planning is your best defense against costly mistakes.

Reach out to us for a complimentary, 10-minute consultation call. Let's explore together how we can help you protect your assets, ensuring your golden years are as fulfilling and worry-free as you’ve always imagined. Call Eric at 614-943-2265 to schedule your consultation. Let's make your retirement dreams a reality!

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The Battle of the Bonds

Client: "Eric, with all the recent turmoil in the bond market, I’ve been hearing a lot about switching to individual bonds. They say they’re safer and more predictable than bond funds, especially if you hold them to maturity. But is this really the best way to go?"

Eric: "You’ve touched on a debate that has sent shockwaves through the world of fixed income investing. At first glance, individual bonds may seem like a fortress of stability. You hold them to maturity, collect the interest payments, and barring a default, get back the face value. It feels reassuringly simple, doesn't it? Bond funds, by contrast, can be unsettling as their prices fluctuate by the minute, swayed by market forces you can’t control. But before we charge into the realm of individual bonds, let’s take a closer look at the battlefield.

Diversification: The Silent Shield

First, we need to talk about diversification. When you invest in a single or a handful of individual bonds, you’re taking a serious gamble. You’ve put your faith in a limited number of issuers, and if one defaults, your financial stability could crumble. Remember, bonds have a capped upside—the best you can hope for is to receive your face value back. Yet, the downside is catastrophic. If that issuer goes under, your value plummets to zero.

In contrast, bond funds are armed with thousands of bonds, spread across industries, sectors, and even countries. It's the ultimate shield against risk. If one bond falters, it’s cushioned by the strength of the others. Achieving this level of diversification with individual bonds? That would cost you millions, maybe even billions. So, while individual bonds offer a narrower focus, bond funds provide a far broader defense.

The Price Trap

Now, let’s dive into pricing. With individual bonds, the price you pay isn’t always transparent. Brokers can charge hefty markups—1% to 5%—and you're often left wondering if you got a fair deal. Plus, if you need to sell before maturity, you might be forced to do so at a loss, depending on market conditions.

Bond funds, however, provide more transparency. Yes, they charge management fees—around 0.33% on average—but you know what you're paying. They also price throughout the day, reflecting real-time market movements, giving you liquidity that individual bonds can’t match. This flexibility can be a lifeline in volatile markets.

Flexibility: The Advantage in the Field

The adaptability of bond funds is something individual bonds can’t compete with. Bond fund managers are constantly repositioning, rebalancing, and adjusting for changes in interest rates, credit quality, and market conditions. With individual bonds, you're stuck—locked into a rigid structure unless you incur the costs of selling and repositioning yourself.

Think of it this way: a bond fund is like a team of skilled generals, making adjustments behind the scenes, while you focus on your broader strategy. With individual bonds, you're both soldier and strategist, but without the flexibility to pivot when conditions change.

Final Call to Arms

So, are individual bonds safer? They can certainly provide a sense of predictability—if you’re willing to hold them until maturity and weather any potential storms along the way. But safety isn’t just about avoiding volatility. True security lies in the ability to adapt, diversify, and remain nimble in an ever-changing financial landscape.

Whether you choose individual bonds or bond funds, it’s crucial to tailor your strategy to your goals, your portfolio’s size, and your risk tolerance. In the end, the best approach is one that arms you with the flexibility and protection needed to navigate both calm and stormy markets.

Contact us for a free, brief 10-minute consultation. Together, we can discuss ways to safeguard your wealth and ensure your retirement years are as enjoyable and stress-free as you've envisioned. To arrange your consultation, Call Eric at 614-943-2265 We're here to help turn your retirement aspirations into reality.

Fixed annuities can be an essential component of a well-rounded retirement strategy, offering security, predictability, and efficiency in financial planning.

Here are current fixed annuity rates and their durations from Top A-rated carriers (subject to change at any time, not FDIC insured):

Rates Are Dropping Quickly (Nearly a Full Point Over the Last Couple of Weeks)! Don’t Wait To Lock Them In!

3-year: 4.85% (under $100k Deposited)

3-year: 5.15% (over $100k Deposited)

5-year: 5.15% (under $100k Deposited)

5-year: 5.60% (over $100k Deposited)

Please feel free to call Eric at 614-943-2265 if you’d like to ask any questions or request information on these fixed annuities or other retirement topics that are on your mind.

REAL ASSETS, Invest Like the Ultra-Wealthy

Have You Considered Adding Gold or Bourbon to Your Investment Portfolio?

Given the current economic uncertainties, many informed investors are looking to physical assets to protect their retirement funds. Tangible investments like gold and even bourbon barrels are gaining popularity. These concrete assets serve as a robust defense against the impacts of excessive currency creation and rising prices. They also offer excellent diversification options during stable economic periods.

Historically, physical assets have consistently outperformed other investment types during economic downturns and market instability. They provide a reliable safeguard against potential financial upheavals. Incorporating tangible assets into your investment strategy can be both prudent and rewarding.

In light of today's economic volatility, investing in physical assets could be a sensible approach to maintain the resilience of your financial plans. Would you like to learn how these tangible investments might enhance your portfolio?

Allocating funds into the asset class known as “Real Assets” may be a strategy that you should consider.

Ask us how to Rollover a portion of Your IRA or 401k To A BOURBON IRA (www.bourbon.fund/how-it-works/) or a GOLD IRA (see link below) and:

• Safeguard your assets from the collapsing dollar

• Incorporate the ‘REAL ASSET’ class into your portfolio like the ultra-wealthy

• Hedge against the current high-inflation conditions

• Protect your retirement assets against economic crises

Just get in touch. We make it easier than ever.

Feedback or Questions?

You’re invited to get in touch with us if you’d like to find out how the Novus Financial Group can help you on your journey to a happy, fulfilling life in Retirement. 

Office: 614-943-2265

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Investment advisory services are offered by duly registered individuals on behalf of CreativeOne Wealth, LLC a Registered Investment Adviser. CreativeOne Wealth, LLC and Eric Seyboldt are unaffiliated entities.

The content we provide here isn’t financial advice and cannot be taken as such. Please speak to your financial advisor before making any investment decision. Also, note that every investment comes with its risks and drawbacks. Lastly, we would like to remind you that past results cannot guarantee future returns.

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