Mportant Information About Your Revocable Living Trust (Page 6 of 10) in pdf

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given above, and if you have any concerns about whether the company’s or agent’s wording is sufficient, please

Sometimes, life insurance policies are not owned by the person whose life is insured. For example, life

insurance on a husband’s life may be owned by his wife, or vice versa. That type of ownership arrangement

may well have made sense when the policy was obtained, but has no tax advantages under current law

(assuming both spouses are U.S. citizens). In fact, that ownership arrangement can complicate the operation of

an estate plan. Therefore, if there is any life insurance on your life that you think should be made payable to

your revocable trust, but you are not the owner of the policy, please discuss this with us before proceeding. For

those policies, it may be advisable to change the ownership of the policy as well as the beneficiary. Most

insurance companies use a separate transfer or assignment form to change policy ownership, and you may have

to request this form from your agent or the insurance company, along with the change of beneficiary form.

Individual Retirement Accounts, Pension, Profit Sharing and Other Retirement Plans, and Tax-Deferred

Annuities

If you have an Individual Retirement Account (“IRA”), you can name a beneficiary to receive any balance

remaining in the account at your death. Similarly, if you participate in a pension, profit sharing, or other tax

qualified retirement plan through your employer, the plan may provide a death benefit, for which you can name

a beneficiary. In addition, the contracts for tax-deferred annuities usually permit the owner to name a

beneficiary. All of these types of assets have income tax consequences to the beneficiaries, and in that way they

are different from other assets. How you should handle IRAs, other types of retirement plans, or tax-deferred

annuities may depend on whether you are married, the size of the account in relation to your other assets, and

whether your children are adults. We will generally give you our suggested beneficiary designation language in

the letter we send to you with copies of your signed documents. The following is a more general discussion of

some of the issues involved.

If you are married, federal law requires that a surviving spouse receive a joint and survivor annuity from a

qualified retirement plan death benefit (an ERISA plan), unless he or she consents to the naming of a different

beneficiary. There are special rules that will have to be followed if you want to name your trust as beneficiary,

instead of your husband or wife. Those restrictions do not apply to the beneficiaries named in IRAs or tax-

deferred annuities.

There is usually a “trade-off” between estate tax benefits available if you name your trust as beneficiary (to fund

the Family Trust with the “applicable exclusion amount,” for example), and income tax benefits if you name

your husband or wife as beneficiary. An IRA, retirement plan benefit or tax-deferred annuity is usually subject

to income tax when received by the beneficiary (unless it represents money that you already paid income tax on,

or investment in the annuity contract). In addition, your IRAs, retirement plan death benefits, and tax-deferred

annuities are usually included in your estate for estate tax purposes. Therefore, these assets are potentially

subject to both income taxation and estate taxation. (The beneficiary who has to pay the income tax has a

special deduction for the estate tax attributable to the benefit, but the deduction does not completely offset the

double tax effect.)

Mportant Information About Your Revocable Living Trust Page 6