If you live in California, setting up a living (revocable) trust is wise for estate planning — it can help your heirs avoid the delays, costs, and publicity of probate. But California has its own rules and thresholds, especially around vehicle titling, DMV requirements, estate value limits for simplified transfers, and certain asset types that are non-transferrable or can carry unintended tax or administrative burdens.
Below are guidelines tailored for Californians about what you generally should not put into your living trust (or should do very carefully), and why these can lead to unexpected complications.
California-Specific Assets to Avoid (or Handle Carefully) in a Living Trust
Here’s a list similar to the general one, but with CA laws, regulations, and peculiarities:
| Asset / Type | California Rules / Why You Should Be Cautious | Possible Surprises for Heirs in CA |
|---|---|---|
| Retirement Accounts (IRAs, 401(k)s, qualified annuities, etc.) | Same as general: tax-advantaged, strict rules. Plus California does not change federal withdrawal/tax rules. Transferring into trust can trigger taxable events. | Heirs might lose the beneficial stretch or deferral options; may face huge tax bill earlier than expected. |
| Health Savings Accounts / Medical Savings Accounts (HSAs / MSAs) | California law recognizes these are individual, non-transferable. Putting into trust can jeopardize the tax benefits. attorneypaulcampo.com+1 | Possible loss of tax-free treatment; confusion about which entity is beneficiary; complications for medical expense reimbursements. |
| Life Insurance Policies | Very risky to transfer ownership or incidents of ownership if you want to avoid estate inclusion. In CA, policies with designated beneficiaries generally bypass probate, so putting them in trust often adds complexity without benefit. estatepreservationgroup.com+2grossmanlaw.net+2 | Delay in payout; possible estate tax inclusion; disputes if policy terms weren’t updated; loss of control. |
| Motor Vehicles | CA DMV allows vehicles to be registered in the name of a trust, but there’s paperwork: you need the trust document, the trustee’s appointment, possibly REG 256 or other forms. Unpaid parking/toll violations can block transfer to trust. California DMV+2markruizlaw.com+2 | Extra DMV fees, paperwork, delays. Insurance companies may not like trust as owner. If vehicle is old or used often, maintenance of trust title might be more hassle than probate would have been. Also, many cars in CA may not need trust titling because other non-probate options exist. jamesburnslaw.com+2California DMV+2 |
| Joint Bank Accounts / Jointly Owned Property | In CA, joint tenancy with rights of survivorship automatically passes to the surviving joint owner; adding to trust may duplicate or conflict with those rights. attorneypaulcampo.com+1 | Possible duplication of title, confusion about who really owns what; unexpected tax, creditor, or estate liabilities; risk of contest if heirs differ. |
| UTMA / UGMA Accounts | Custodial accounts under CA law are held for minors until they reach age; the custodian has limited power and can’t simply transfer the account into a trust without possibly violating the terms of the custodianship. California Living Trusts+1 | May lose the protections or intended access; legal challenges from custodian or courts; possible tax or liability if terms are violated. |
| Assets You Don’t Fully Own or Restricted Titles | Partnerships, LLCs, certain business interests often have agreements that govern transfers. Real estate in community property situations may need spousal signatures. Some licenses/permits aren’t transferrable in CA.esta | Heirs may find parts of business worthless because transfer violates agreement; permits lost; creditors might claim; burdensome litigation. |
| Safe Deposit Box / Personal Property with High Sentimental but Unclear Value | With CA’s property tax, estate tax (federal) considerations, and rules of valuation, unclear or undervalued personal property can cause disputes. Lack of clear title or proof of ownership leads to complications. | Heirs may delay or fight over items; undervaluation can lead to tax problems; overvaluation causes disputes or overpayment of estate tax. |
California-Specific Key Issues & Risks
- Probate threshold / small estate limits:
In CA, simplified procedures (affidavits, etc.) are available when estates are under certain value limits. If you title everything correctly and keep assets under certain amounts, heirs might avoid probate anyway. Putting everything into trust sometimes isn’t necessary or cost-effective. estatepreservationgroup.com+1 - Vehicle title & DMV issues:
Transferring a vehicle into a trust isn’t always simple: need trust documents, trustee credentials, clearing unpaid parking/toll violations, possible use tax or smog certification. Delays with the DMV are common. California DMV+1 - Estate tax / federal tax still applies:
California does not currently have a state-level estate tax for most estates (it was repealed at some point and current rules are different), but federal estate tax may still apply. Trusts may help with probate but do not automatically shield from federal estate tax if you retain ownership/control. Also, “incident of ownership” rules may drag assets back into estate. - Beneficiary designations vs. Trust funding:
Many assets (retirement accounts, life insurance, some bank accounts) allow you to name non-trust beneficiaries; often better to leave these out of trust but coordinate beneficiary designations with trust terms. Failing to update or mismatch can lead to assets passing outside the trust unintentionally. - Funding the trust properly:
In CA, creating a trust document is only the start. You must “fund” it: title deeds changed, account titles changed, DMV titles updated if you want those assets in trust. Assets not properly transferred remain part of your estate and may go through probate. Geiger Law Office+2estatepreservationgroup.com+2 - Insurance & liability:
Sometimes insurance policies (auto, homeowner) may have provisions or premiums depending on ownership. Insurers may balk at trust ownership, or additional documentation required. Similarly, retaining control of assets in your name (or naming trust but with you as trustee) doesn’t always change liability exposure.
California-Specific Smart Alternatives & Fixes
- Use Transfer-on-Death (TOD) designations where available (for vehicles or mobile homes). CA allows TOD for vehicles in some situations. Toews Bio & Abram, Inc.
- Keep certain accounts (e.g. retirement) out of trust, but name trusted beneficiaries.
- For vehicles, evaluate whether the benefit of trust titling outweighs the DMV cost, paperwork, insurance complexity. Often for everyday cars, leaving them titled in your name with TOD or using small-estate affidavit may be simpler.
- Always keep your trust document, deeds, account records, and DMVs updated and accessible. Clear, current trust documents are essential when dealing with DMV, real property, etc.
- Consult with a California estate planning attorney — state law can shift, thresholds change, and certain case law influences how trusts are interpreted.
Why Californian Mistakes Often Surprise Heirs
- Believing that “putting everything in the trust” avoids all legal or tax trouble — but if funding is incomplete, or key titles / registrations are left out, probate may still bite.
- Underestimating DMV delays, title transfer costs, or insurance complications for trust-held vehicles.
- Failing to consider California’s probate thresholds and simplified transfer laws — sometimes the cost/time of managing trust titles isn’t justified.
- Mistiming transfers (e.g. moving property into trust just before severe illness or death) can lead to confusion or even legal challenges.
Resources for California Residents
- “What Assets Should Not Be in Your Trust in California?” – Attorney Paul Campo — what CA says about certain non-transferable or ill-advised assets. attorneypaulcampo.com
- CA DMV Handbook: Trust Transfers for Vehicles (Section VC §5600) — detailing registration, title transfer requirements, unpaid violations, and trustee documentation. California DMV
- “How to Handle California Vehicle Transfers with the DMV When Someone Passes Away” — steps and potential complications. markruizlaw.com
- Estate Preservation Group – “What Assets Are Exempt From Probate in California” — thresholds, non-probate assets, and simplified transfer options. estatepreservationgroup.com