Funding Living Trust Part 1 talked about bank accounts, part 2 discussed Brokerage Accounts, Individual Securities and Mutual Funds. In this the final installment, I am writing about retirement assets and life insurance.
You should NOT change the ownership of an IRA, 401k, and or 403b account etc. You need to be aware that changing ownership would constitute a withdrawal and be a taxable event. Therefore they cannot and should not be transferred into a living trust. When funding living trust with these types of assets, most will leave the spouse as first beneficiary and change the contingent beneficiary to the trust. Even though your spouse may be the primary beneficiary of the trust, as an individual he or she will have greater rights and more flexibility as the primary beneficiary of the asset.
Term Life Insurance: If you are the owner and insured of a term life insurance policy, the only change required is to name the trustee as beneficiary with you retaining all ownership rights unless there is some specific reason to name another beneficiary. You do not need to change the ownership of your term life insurance policies.
Cash Value or Whole Life Insurance: If the policy has a cash component, then you may wish to change ownership along with changing beneficiary to the trust so your successor trustee has access to the cash value for your benefit if you become disabled.
In summation of the three articles on funding living trust:
Change Ownership to the trust for:
• Bank Accounts;
• Brokerage Accounts;
• Individual Stocks and Bonds;
• Mutual Funds.
Change Beneficiary to the trust for:
• Retirement Assets; trust as secondary beneficiary;
• Term Life Insurance.
Change Ownership and Beneficiary to the trust for:
• Whole Life or any cash value life insurance policy.
After reading all three of the articles in this series, you should have a good understanding on funding living trust. Now make sure you complete your estate planning. Remember you don't plan your estate for yourself, but for the ones you love.
Robert Olson is the lead attorney at DIY Lawyer. A website dedicated to helping people do their own legal work including drafting a Living Trust. They offer an e-book with a money back guarantee titled the Living Trust Annotated. This book teaches you to draft your own Living Trust for a fraction of what you would pay an attorney. With the purchase of the e-book you also receive a free half hour phone consultation with a DIY Lawyer to answer your questions about the book. You can read about it at DIY Lawyer's Living Trust Annotated.
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