Part 2 of How to Fund a Living Trust

Funding a trust with retirement accounts, life insurance policies, securities and mutual funds requires some explanation on how best to deal with these assets.

IRAs, 401ks and related retirement accounts have built-in estate planning, because they allow you to designate beneficiaries.  Those beneficiaries who survive you receive the funds without going through probate.  But these accounts also pass on the burden of tax-deferred income.  Inheritors of those accounts are required to pay income tax on all amounts they withdraw.  Distributions from the inherited IRA can be stretched out over the heir’s life expectancy, thus further deferring the need to pay income tax.  Unless the living trust is drafted properly, this strategy can be frustrated by naming the trust as beneficiary , but the benefit of getting the estate planning in the living trust makes it still worth while to name the trust in most circumstances.  Married couples may wish to name each other as primary beneficiaries and name the trust as contingent beneficiary, but everyone else should name the trust first.  More detailed explanation is available in this article. As always, consultation with a qualified attorney is recommended.

Roth IRA accounts should simply name the trust as the primary beneficiary.  Since there is no tax-deferred income in these accounts, they do not present the complication of inheriting a tax liability.

Regardless of the type of retirement account you have, properly naming the beneficiaries makes it possible to stop worrying and look forward to retirement with enthusiasm.


Life insurance policies also have built-in estate planning in that they designate beneficiaries who inherit without going through probate.  By naming the trust as beneficiary of the insurance policy, you will be further reaping the benefit of the planning that went into your living trust.

Stocks and marketable securities are transferred to the trust by the stock broker used for the security.  This can be a tedious process, but carefully following the broker’s instructions should accomplish the task.  Mutual funds are transferred to the trust by contacting the fund company and requesting to retitle the account in the name of the trustee of the trust.

Philippine Stock Market Board

Funding the trust is not difficult, but if tackling these issues becomes overwhelming, get the help of an attorney.  Your wishes will not be carried out unless the trust is fully funded.

Creative Commons License photo credits:  Lucy BoyntonKatrina.Tuliao

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