Need more income to refinance or qualify for a mortgage? Too often the problem seems intractable. Especially when an increase in income through a job is not a likely solution. Without additional earnings from labor, additional income might not be all but impossible.
Turning on regular periodic distributions from an individual retirement account (IRA) or 401(k) is be one way to increase your income. However, your IRA or 401(k) savings may be too meager to make a difference. Enter the “Income Trust.”
An Income Trust is literally a trust that is used to relabel your assets as income. That might seem to violate the traditional principals of “saving for retirement”, but more on that later.
First, an estate planning attorney creates an Income Trust designed to meet your income needs. Then it is filled with assets, such as cash, an investment account or a lump sum alimony payment received. The Income Trust makes a distribution to you each month. Generally, the amount of the distribution is determined by how much additional income you need to qualify for the mortgage or to refinance an existing mortgage.
The risk to your savings is obvious. When any portion of an asset is relabeled as income, the tendency is to spend it. This will eat away at, and could wipe out, your savings. To avoid that tendency, the Income Trust can make the monthly payment directly into an investment account.
Of course, this brief article is no substitute for careful consideration of all the advantages and disadvantages of an Income Trust in light of your personal situation. Before implementing an Income Trust strategy, contact your estate planning attorney.
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