Under some circ*mstances, it might make sense to name a trust as the beneficiary of your will. When you die, the property you leave will be transferred to the trust, rather than directly to a person or organization. This is generally done for one of two reasons—either you want all of the property that passes through your will to "pour" into your living trust, or you want to leave property to a loved one's "special needs trust."
If you want to leave property to a different type of trust--not a living trust or special needs trust-- see a lawyer for help.
Leaving Property to a Living Trust
If you have a living trust, you can use your will to transfer property to the trust after your death. If the primary purpose of your will is to funnel property to a living trust, the will is called a "pour-over" will. Making a pour-over will means you don't have to transfer every minor asset into your living trust. Also, if you name your trust as the sole beneficiary or the residuary beneficiary of your will, the pour-over will covers any property that you might have neglected to transfer to the trust during your life.
But there's one important thing to keep in mind when you make a pour-over will: The property you leave through the will may have to go through probate when you die. Because living trusts are designed to avoid probate, if you leave too much property through your will, you may end up thwarting your own best intentions
Most people who make a pour-over will leave most or all of their property through the living trust or through other beneficiary designations (such as life insurance), so that very little property ends up passing through the will. Whatever approach you take, before you make a pour-over will, be sure you know how much property your state allows you to pass through your will without triggering probate proceedings.
To leave property to your living trust, name your trust as beneficiary for that property, using the trustee's name and the name of the trust. For example:
- John Doe as trustee of the John Doe Living Trust, dated January 1, 20xx
Learn more about Probate in Your State.
Leaving Property to a Special Needs Trust
Special needs trusts allow people with disabilities to receive additional support without risking their eligibility for government benefits. Money or property given directly to people with disabilities is likely to interfere with their ability to receive disability benefits. For this reason, if a loved one has a special needs trust, you may want to name that trust as a beneficiary of your will.
To name a special needs trust as a beneficiary, use the name of the trustee and the full legal name of the trust as beneficiary: For example:
- Chris Lee as the trustee of The Pat Lee Special Needs Trust"
Learn more about Special Needs Trusts.
FAQs
To leave property to your living trust, name your trust as beneficiary for that property, using the trustee's name and the name of the trust. For example: John Doe as trustee of the John Doe Living Trust, dated January 1, 20xx.
What would be a valid reason for naming a trust as the beneficiary? ›
Naming a trust as a beneficiary is a good idea if beneficiaries are minors, have a disability, or can't be trusted with a large sum of money.
What is an example of a beneficiary trust? ›
For example, a parent can establish a trust for a child, giving the beneficiary control of its assets when the child reaches an age of maturity or upon the parent's death. This arrangement is common with revocable trusts, which distribute assets to beneficiaries upon the grantor's death.
Should I name my trust as beneficiary of my life insurance? ›
Naming your trust as the beneficiary of your life insurance policy can be a smart and strategic move in your estate planning efforts. It provides you with probate avoidance, control, protection, and privacy while helping streamline the distribution of assets to your loved ones.
What is an example of a beneficiary name? ›
Life insurance beneficiaries can be individuals, such as a spouse or adult child, or entities, such as a trust. For example, if you have minor children, you may choose to establish a trust and name it as the beneficiary of your life insurance policy.
What if a trust does not name a beneficiary? ›
If a trust does not have definite beneficiaries and is not created for the benefit of a charity, it is deemed to be an unenforceable trust. An exception to the definite beneficiary rule is when the trust is a charitable trust which is created to benefit a charity.
What would be the disadvantage of naming a trust? ›
Disadvantages include:
- Potential subject to income or federal estate taxes.
- Possible challenges on validity and probate processes.
- Becoming public records accessible to anyone.
Before naming a trust as IRA beneficiary, however, you must understand the repercussions. By naming a trust as IRA beneficiary you may lose the spousal rollover and the ability to “stretch” the tax-deferment advantages across generations.
What is the disadvantage of naming a trust as beneficiary of a life insurance policy? ›
Cons of listing a trust as your life insurance beneficiary
However, the costs you're incurring now mean that you're saving your heirs the same set-up and transfer costs (as well as the potential costs associated with probate). Funding the trust also can be challenging.
Do beneficiaries of a trust pay taxes? ›
Beneficiaries of a trust typically pay taxes on distributions they receive from the trust's income. However, they are not subject to taxes on distributions from the trust's principal.
Beneficiary of an Irrevocable Trust
You may choose yourself, family, friends, yet to be born grandchildren, a charity or any other organization.
How does a trust pay a beneficiary? ›
The grantor can opt to have the beneficiaries receive trust property directly without any restrictions. The trustee can write the beneficiary a check, give them cash, and transfer real estate by drawing up a new deed or selling the house and giving them the proceeds.
Does it matter what you name a trust? ›
You can name a trust anything you like, and the name can be long, short, simple or complicated. When choosing a name, keep in mind that the name will be in the title of any asset held in the trust. This consideration may inspire some to keep the name on the short side.
Is a beneficiary better than a trust? ›
Beneficiary: Do you need a trust if you have named beneficiaries on your accounts? Yes. It is always a good idea to have a trust to handle your assets after your death. Although naming the beneficiaries of your accounts ensures that they can avoid probate, it overrides any estate planning you may have in place already.
What is the difference between a beneficiary and a beneficiary trust? ›
Life insurance beneficiaries can receive a death benefit when the policy owner passes away. The same is true for the beneficiary of a 401(k) plan or an IRA. A key difference is that trust beneficiaries may benefit from trust assets while the grantor is still living if the trust document provides for that.
Can I name my trust as the beneficiary of my bank account? ›
You can name a trust as a direct beneficiary of an account. Upon your death, your assets transfer to the trust and distributions are made from the trust to its beneficiaries according to your wishes.
How are trusts usually named? ›
Usually you'll consider the grantor/trustor and/or the beneficiary(ies) when picking a name. This leads to the vast majority of trusts being named after the family - Thompson Family Trust for example.
What would be the disadvantage of naming a trust as beneficiary of a life insurance policy? ›
Your estate may be large enough that you'll owe estate tax on a portion of it. You have no real control over how your life insurance benefit is used once it's willed to them. Your benefit may enter a probate process – which can be expensive, and delay the delivery of a benefit to your beneficiary.
Who is the primary beneficiary of a trust? ›
The beneficiaries are the persons for whose benefit the trustee holds the trust property. In most trust deeds the “primary beneficiaries” will be specified, and will usually be the people setting up the trust, and perhaps their children or other close relatives.
