Should a 401(k) Be Put Into a Living Trust?

By Heather Frances J.D.

A living trust can be an important part of an estate plan, allowing assets to pass directly to named beneficiaries without having to go through a court-administered probate process. Many assets can be included in the trust, such as real estate, vehicles and bank accounts. But 401(k)s, IRAs and some other retirement accounts cannot be placed in a trust.

401(k) Ownership and Trusts

401(k)s must be owned by individuals, not trusts, businesses or other entities. Thus, you cannot place your 401(k) into your living trust even though you can put other assets into the trust's name. Creating a living trust does not automatically place any of your assets into the trust. You must place your assets into the trust's name by changing the title documents or other ownership papers. However, typically, you cannot change your 401(k)'s ownership, since only individuals can own 401(k) accounts.

Giving a 401(k)

Though you cannot put your 401(k) into your trust, you can leave it to someone when you die. Generally, you can select a beneficiary when you set up the account by listing your beneficiary's name on the paperwork that establishes the account. You can also change your beneficiary, typically by completing a beneficiary change form with the company that manages your account. At the time of your death, your beneficiary inherits your account.

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Living Trusts & Bank Accounts

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What Is the Difference Between a Living Trust and an Estate Account?

Living trusts and estate accounts are entirely different entities. The former is an estate-planning tool that allows a person to control assets placed in the trust during his lifetime and simplifies distribution to beneficiaries after death. The latter is an account opened by the executor of an estate after probate has been commenced to pay the estate's taxes, debts and any other necessary distributions out of estate assets.

How to Terminate a Living Trust

Any trust that you establish during your lifetime is a "living trust." Living trusts can be revocable, which means that the person creating the trust, known as the "grantor," can terminate it during her lifetime. However, living trusts can also be irrevocable, which means the grantor cannot terminate the trust. In this case, the trustee can terminate the trust, but only in the manner specified in the trust – for example, after all the assets have been distributed.

Can You Transfer Debt Into a Living Trust?

A living trust is an agreement in which you transfer your assets into the ownership of the trust. You can retain control of those assets by naming yourself as trustee until your death, at which time a successor trustee takes over and distributes your assets to your beneficiaries. While you cannot transfer debt into a living trust, creditors might be able to reach the assets in the trust during your lifetime and after your death.

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