A living trust is an arrangement whereby you transfer ownership of assets to a trust while you are alive. Property placed in trusts does not have to go through probate. The person you name as trustee manages the assets according to your wishes. A contingent beneficiary is someone who receives the assets of a trust only if specific conditions apply. It is common to name a person or organization as contingent beneficiary in case the primary beneficiary dies. You can also make a trust specifically for a contingent beneficiary that distributes the assets to the beneficiary only under certain circumstances.
1. Decide if you want to retain an attorney, use a commercial service or make a living trust yourself. Check your state laws first, because some states require the use of an attorney.
2. Select trustees and beneficiaries. You may serve as your own trustee, but you should name a successor trustee to take over when you are no longer able to manage the trust’s assets. With most trusts, you name a primary beneficiary, such as your spouse or child. In this case, the contingent beneficiary receives the trust’s assets only if something happens to the primary beneficiary. You can name a person or an organization, such as a charity, as contingent beneficiary.
3. Set a living trust up specifically for a contingent beneficiary. You must state the conditions under which the contingent beneficiary will receive the trust’s assets. For example, you might stipulate that a child will receive the assets only when and if she completes college.
4. Fund the trust. This means actually transferring title of the assets to the trust. You have to change the name on the title to that of the trust for property such as real estate. Make the trust the beneficiary for assets like bank accounts. With other types of property, a notarized written statement is usually sufficient. Do not transfer title to IRAs, 401(k) plans or other tax-deferred accounts. Doing so will probably conflict with IRS rules and may result in penalties. You can make the trust itself a contingent beneficiary of such accounts, however.
- The Federal Trade Commission advises caution when using commercial providers of living trusts. Some are legitimate, but others are scams or misrepresent their product. Always check with the Better Business Bureau before you sign anything. You should also exercise care regarding do-it-yourself kits for making trusts. State laws vary and a kit may not be suitable in your state.
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