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I. Introduction

Most important to estate planning, whatever documents may be prepared, are the steps required to designate beneficiaries of life insurance policies, annuities, retirement plans and similar benefits, and to fund any trust which may be involved. Well-crafted, suitable plan documents are not of much value if assets are not properly directed or placed to carry out the estate plan's objectives. The information provided in this discussion is general in nature and is not intended to constitute legal advice. It may or may not apply to, or be useful in, individual situations and should be relied upon only if one is satisfied that funding objectives have been achieved. Should there be any question, an experienced attorney should be consulted.

II. Who Should Be the Beneficiary and Owner of My Life

Insurance, Retirement Plans and Other Benefits?


Historically, most people have directly and exclusively named individuals as beneficiaries of life insurance, retirement and other benefits. Although many people continue to do this, the disadvantages are the inabilities:

  • To provide for all likely, or unforeseen, contingencies;
  • To provide for the management of assets, and the exercise of discretion, to meet the needs of younger or incapacitated beneficiaries; and
  • To provide protection from taxation or creditors.

Any thoughtful planning contemplates and attempts to achieve a comprehensive plan through which all assets flow, regardless of their nature or source. There are, of course, exceptions which are discussed below. In order to meet this objective, and to provide for optimal flexibility, most planning provides for the creation of various trusts. These trusts may be designed to provide for management of assets, to provide for the proper use of assets, to shelter assets from claims of creditors or to reduce or minimize various taxes, or all of these objectives.

In order for a trust to meet its objectives, assets have to be placed in, or left to, the trust. In the case of life insurance or annuities, this involves naming the Trustee as the beneficiary and, often with respect to trusts ("inter vivos" or "living" trusts) created during lifetime, assigning policy ownership interests to the Trustee.

The Trustee of a trust created under a will (a "testamentary" trust), of course, can also be named as the beneficiary. Many wills will leave the "residue" of the estate to a Trustee in all events, even if the Trustee's only duty is to immediately distribute out to the beneficiaries. This is done rather than simply naming the "estate" as the beneficiary, which would subject the insurance or annuity proceeds to claims of creditors, and possibly to additional estate and inheritance taxes.

Retirement plan benefits, including 401(k) plans and individual retirement accounts ("IRAs"), are more problematic. This is because of the usual desire to defer the payout of such benefits as long as possible in order to minimize early recognition of income. Generally, payouts, or distributions, from such retirement plans represent taxable income when received. If a spouse, for example, is the beneficiary of such a plan, he or she generally is entitled to "roll over" any distribution into an IRA in his or her own name and not have to take distributions until his or her own required beginning date (after age 70). The surviving spouse also may be able to elect not to begin receiving distributions until the deceased spouse would have reached the required beginning date.

If a distribution, however, is made out of a retirement plan to a trust for the spouse (in order to provide for management and other protections), annual minimum distributions may have to commence almost immediately and be paid out over the surviving spouse's life.

Whether to name the spouse as the beneficiary outright or to name a trust for him or her requires a balancing of objectives. Some people are driven more by tax savings or deferral and others more by the desire for management, or protection of the spouse, or sometimes to insure that other loved ones may benefit from the retirement benefits as well.


Beneficiary Designations

If a person establishes a living trust during lifetime, insurance on the life of and owned by such person generally is made payable (on whatever beneficiary designation form is provided by the insurance company) directly to the trust. A typical beneficiary designation (for a hypothetical person named John E. Smith) would be as follows:

"The successor Trustee or Trustees under the JOHN E. SMITH TRUST

dated _________________, 20_____"

Even though, as is typically done, John Smith may name himself as the initial Trustee, it obviously wouldn't make sense to name him as the beneficiary of insurance on his own life. Likewise, it would make no sense to name the persons whom he may name in his trust as his successor Trustees since it is not known which one in fact would be the Trustee at his death, and he may decide to change his successor Trustees.

If no living trust is involved, and trust provisions are provided for in the will instead, the insurance can simply be made payable to "The Estate of John E. Smith". If under the will, however, as mentioned above, the residue of the estate is left in all instances to a Trustee (who, in turn, either simply distributes to the beneficiaries or continues to hold property in trust for beneficiaries), then it would be preferable to have the beneficiary designation read:

"The Trustee named in ARTICLE ______ under the Will of

John E. Smith"

Assignment of Ownership Interests

Where a living trust is involved, it is usually desirable to transfer ownership of non-group life insurance policies (on the life of the person who created the trust, the "settlor") into the trust. This is especially true if the policies have cash value which, through loans or otherwise, can be accessed, if needed, for the settlor, if incapacitated, and his or her family. The assignment is usually made on a form provided by the insurance company, which sometimes is on the same form as the beneficiary designation. The new owner, since the settler is still alive, could be designated as:

"John E. Smith, as Trustee under the JOHN E. SMITH

TRUST dated _____________, 20____"


Annuities are not unlike life insurance. They have both a beneficiary and an owner. Most annuities today are investment vehicles which qualify for certain income tax treatment, principally the deferral of recognition of income. It would be desirable to place annuities in living trusts, since annuities usually have significant value which can be accessed during the annuitant's lifetime for the annuitant and his or her family. Both the beneficiary designation and the transfer of ownership into the annuitant's living trust would be similar to life insurance and made on a form or forms provided by the company issuing the annuity. There, however, may be certain disadvantages in placing annuities in trusts, such as the loss of spousal rights to defer receiving annuity benefits, which may result in earlier recognition of income built into the contract. Annuity contracts should be reviewed in order to determine if any such disadvantages may exist.


Beneficiary designations of benefits under 401(k) plans and IRAs, as in the case of life insurance and annuities, are also made on forms provided by the retirement plan or IRA trustee or custodian.

For reasons discussed earlier, the spouse may be named as the primary beneficiary. If a trust created for the spouse is to be named as the beneficiary, it should be designated carefully and with specificity. Even if the spouse is named as the primary beneficiary, one or more trusts for descendants, for example, may be named as the secondary or "contingent" beneficiary. Such contingent beneficiary designations would be made in a manner similar to life insurance.

Any designations of trusts as the beneficiary of such benefits should be made only after careful consideration of possible tax consequences, principally possible accelerated recognition of gain, and it would be desirable to confer with an attorney or tax advisor. Any opportunity for continued deferral of income recognition, of course, always needs to be balanced against meeting family planning objectives of management, beneficiary protection and flexibility.

Finally, because of adverse tax consequences, during the participant's lifetime the ownership of interests in 401(k) and IRA plans should remain in the participant's name and not be transferred into living trusts, or otherwise.

III. How do I Transfer Ownership of

Other Assets Into My Trust


Trusts, like individuals, corporations and other legal entities, can own property interests in many forms. These interests include real estate, stocks and bonds, cash, mutual funds and partnership interests. Ownership of such interests can be transferred to a trust, using language similar to that used in connection with life insurance policies and annuities.


Title to real estate, such as a residence, is transferred to the Trustee of a trust by a deed, usually called a "deed in trust". The form of the deed should include special features and language and should be prepared by an attorney.


Shares in a corporation represented by a stock certificate can be transferred either by completing an assignment on the back of the certificate or by use of a separate "stock power" or "assignment separate from certificate" delivered to the transfer agent for the corporation (banks or other entities which handle stock transfers for corporations, if not the corporations themselves) along with the stock certificate (or certificates if there are more than one). There are generic stock power forms available or sometimes they are available from the transfer agents directly. Signatures on such assignments generally must be "guaranteed" by a bank officer or other person authorized to do so.

Shares in a corporation which are not represented by a certificate generally are simply held in an account for the shareholder by the corporation. Each such corporation should be contacted to determine what its requirements are to effect a transfer into a trust. More than likely, they will prefer or insist that you use forms provided by them.

Corporate bonds generally can be assigned in a manner similar to stocks, either on the bond itself or by a separate assignment. Bonds issued by a public body, such as U.S. Treasury bonds or municipal bonds, may require special procedures or forms in order to effect a transfer, and inquiry should be made of the respective issuing bodies.

It would be prudent to seek the assistance of a securities or investment firm or an attorney in making transfers of stocks and bonds, and similar securities such as Treasury notes or Treasury bills.


Other direct investments may include interests in investment accounts, mutual funds, unit investment trusts, and limited partnerships. In all of these instances, the particular requirements of the entity involved for transfer may have to be met.

The requirements for transfer of mutual fund interests will vary from fund to fund. The same is true for managed investment accounts, requiring anywhere from a simple letter of direction to the completion of a new account application. Again, each such fund or investment company should be contacted.


Bank accounts sometimes can merely be reregistered in the Trustee's name. Other times a bank may require the opening of a new account and the assignment of a new account number. The same may be true with respect to certificates of deposit where the ownership may merely be changed on the face of the certificate or a substitute certificate may be generated. Each bank should be consulted regarding its practices.


Titled personal property, such as cars, boats, campers and trailers can be transferred into a trust in accordance with the requirements of the Secretary of State of the state which issued the title. Sometimes boats are titled and registered by other state or federal agencies. All other tangible personal property, such as personal effects, household furniture and appliances, and all other "things" which we own, usually can be transferred simply by a written assignment stating something to the effect that "I hereby assign to ________ as Trustee under the JOHN E. SMITH TRUST dated _______, 20___, all of my right, title and interest in and to all tangible personal property which I presently own or may hereafter acquire". As a practical matter, such assignments often are not used if the trust disposes of such property and the will leaves such property to the trust in any event. Families simply consider such property as part of the trust at death, if not before.

Last Updated ( Thursday, 24 February 2011 20:50 )