Trust funding avoids probate, prepares for incapacity, allows your successor trustees to manage your trust assets and helps to ensure that your estate plan works. Your retirement plan should be funded.
Funding in relation to retirement plan assets means that you change the designated beneficiary from an individual (such as your spouse) to the name of your revocable living trust. You absolutely do NOT change the title of the retirement account to anything, including your trust. Changing the title on qualified assets such as retirement plans and qualified annuities accelerates all of the income tax. Accelerating income tax is really bad, whereas tax deferred growth, as you get within a qualified plan, is really good.
A side note: If you are married and want to change the beneficiary of your retirement plan to your trust, and not make it be your spouse, your spouse will have to sign a waiver indicating that he or she is aware of the beneficiary change and is okay with it. If you don’t obtain the waiver, your spouse will be deemed the beneficiary regardless of your wishes.
Once you have your retirement plan funded by changing the beneficiary designation to your trust, jot down a list of all of your other assets. Be sure that your trust is the beneficiary of annuities and life insurance, and make sure your trust is the account owner of all your other assets. Other assets include your house, car, bank accounts, investment accounts, and personal property such as collectibles, antiques, jewelry and other valuables.
Note that some states do not allow cars to be funded. Some states have tenancy by the entireties home ownership, with corresponding asset protection for married couples. Ask your estate planning attorney if you are in one of these states and for specific advice on trust funding.
If you have a retirement plan, be sure to fund it by naming your trust as the beneficiary of the account. If you have any questions about retirement plans or trust funding, consult with a qualified estate planning attorney.
- Preparing for Unexpected Incapacity - April 30, 2021
- Beneficiary Designations and the SECURE Act: Eligible Designated Beneficiaries - April 24, 2021
- “Last Will and Testament” Origin - April 22, 2021
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