Certain assets do not have to be funded to the
revocable trust. For instance, retirement accounts and life insurance policies
will remain outside the trust. Instead, these accounts transfer to named
beneficiaries upon death.
In these cases, greater
attention must be paid to the beneficiary designation than to the title. It
may, in certain situations, be appropriate to name the revocable trust as
beneficiary of the life insurance policy or the retirement plan. However,
individuals should exercise extreme caution in naming the trust as beneficiary
of such accounts because tax consequences or liability may result. For
instance, most trusts do not have provisions allowing distributions from
retirement accounts to be stretched out over the lifetime of trust beneficiaries.
As a result, naming such a trust would result in the acceleration of
distributions of the retirement plan and the incursion of income tax which
could otherwise be minimized.
Naming a trust as
beneficiary of a life insurance plan may also be problematic, for instance in
situations where the liabilities of the trust exceed its assets. In other
situations, it may be appropriate to hold the life insurance in an irrevocable
trust in order to minimize estate tax.
If you have questions, contact a San Francisco Estate Planning Attorney who is familiar with preparing retirement account
beneficiary designations.
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our existing clients. We ask you not to send us any information, (other than as
requested on the “Contact Us” page,) about any matter that may involve
you until you receive a written statement from us that we will represent
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DISCLOSURE
UNDER TREASURY CIRCULAR 230: The United States federal tax advice, if any, contained in
this website and associated websites may not be used or referred to in the promoting,
marketing, or recommending of any entity, investment plan, or arrangement, nor
is such advice intended or written to be used, and may not be used, by a
taxpayer for the purpose of avoiding federal tax penalties.
