Can you put a 401(k) account in a living trust?

A living trust is one of several estate planning tools that can be used in the estate planning process. By establishing a living trust, the grantor or creator of the trust can pass assets and property to their named beneficiaries without those assets or property having to go through probate.

After establishing your living trust, the next step that you have to take is to fund it. Funding your trust is the process of transferring the ownership of your assets from your name to the name of your trust. To do so, you must change the titles from your name to the name of your trust.

Pertaining to the types of asset you put in a living trust: generally speaking, all of your assets should be transferred into your trust. However, there are some assets that you may not want or cannot be transferred into the trust. 

You cannot put a 401(k) in a living trust or other tax-deferred plans, for that matter. Why? If you change the ownership structure of your 401(k), the IRS will regard it as an early withdrawal. Unfortunately, that money will be fully taxable in the year that that transfer takes place. And, if you happen to be under the age of 59 ¹/₂ you’ll be required to pay a 10% penalty for the early withdrawal.

Living trust limits

After creating your living trust, some of the assets that you can use to fund your trust include:

• Bank accounts including checking, savings, money markets, and CDs
• Non-retirement and brokerage accounts
• Non-qualified annuities
• Stocks and bonds held in certificate form
• Tangible personal property such as jewelry, antiques, collectibles, artwork 
• Business interests
• Life insurance policies
• Monies that are owed to you
• Oil and gas interests or foreign assets

Transferring real estate ownership into your living trust will require the recording of a new deed in the trust’s name in the locality in which the real estate is owned.

In the case of 401(k) accounts, they would require a change of beneficiary into the name of your trust in order to avoid negative tax consequences. The accounts would remain outside of the trust until your death at which time the accounts would be paid to your trust.

Everything you ever wanted to know about living trusts in California

When deciding what assets and property you should use to fund your living trust, you should always get legal help from an attorney who is experienced in the area of estate planning.

At the Law Office of David W. Foley, California Living Trusts, our attorneys specialize in creating living trusts as part of comprehensive estate plans for our clients. If you have questions regarding living trusts or about including one as part of your estate plan, you can contact one of our attorneys by phone, email, or visit our office for an in-person consultation. 

Take a few minutes to check out the Living Trust FAQs page on our website.