Will and Trust

ms60ocb · February 2, 2016

I have a Revocable Trust and Will. I trying to move all my possessions into a Trust avoiding the Will and Probate.

I have a few IRA accounts and one Deferred (payroll) Comp.

My question is how I treat these accounts and I keep getting mixed reviews from Financial Planners.. First I thought it might a State issue so I started to get a legal opinion but now looking for others who have crossed this path especially Texas where my Will & Trust reside. After two weeks of trying, I do have a phone appointment March 11 with a Lawyer on this subject.

One previous answer is use the Revocable Trust as the Beneficiary keeping the will and probate from being used. Another says keep the present Beneficiaries and then they open a Beneficiary IRA on my death. I trying to avoid Probate to avoid the big Tax bite at death.

I sure someone has been through this without problems so I looking for anything to challenge the Financial advisers and/or Lawyer when the day come. Rather then my children getting a surprise.

Clay

Escapee # 116305

JRP · February 2, 2016

Like any complex legal or estate issue, its not unusual to get different opinions from professionals. There is rarely a one size fits all solution or answer. Just as with complex medical issues, its good to get second opinions sometimes.

You should definitely make your decision based on the professionals advice, not what you hear on here.

Having said that, what I learned from handling my parents estates, is that not everything is required to go through probate. Things like an insurance policy or an IRA account which include a specific named beneficiary(s), will be paid out immediately on proof of death to the named beneficiary. Only under special circumstances, like if the beneficiary is already dead, incapacitated or is a minor, would those proceeds go to probate. I believe I was also told that if the IRA beneficiary was a trust rather than a real living adult person, then it would go to Probate for approval to transfer to the trust.

Most general property, financial accounts with no stated beneficiary & those property assets owned through a Title with only your name on the title, are required to go through probate to transfer ownership. Property owned jointly with both names on the Title with right of survivorship, also change ownership at death without going through probate. ( yes these laws do vary somewhat from state to state)

PS: just because an asset may transfer outside of probate doesn't necessarily mean it avoids any tax issue. The IRA for example, assuming its a standard IRA funded with pre-tax savings, the beneficiary is still required to pay income taxes as they withdraw those IRA funds, regardless of probate or not.

Ron · February 3, 2016

I'm not a lawyer but I've been advised by two separate trust/estate attorneys and this is what I understand from their advice, from my own experience in setting up our own Revocable Living Trust (RLT), and also from acting as successor trustee of my late sister's RLT.

In order for a RLT to protect you from probate all of your significant assets (e.g., financial accounts, real estate, RV, autos etc.) should be owned (i.e. titled to) the trust. You no longer own those assets, the trust owns them. You are the trustee of the RLT and have complete authority to use, sell, donate, dispose of etc. any asset that the trust owns.

You also need a will (often referred to as a "pour-over" will) to cover the disposal/allocation of any assets you personally own (i.e., that are not in the trust). Things not in the trust will be personal property and assets of nominal value. As long as the non-trust-owned assets are less than a certain value (varies by state I believe, I know in some states it is $50K) your estate will not have to go through probate.

IRAs and similar tax advantaged savings accounts can not be owned by the RLT. This is because federal law requires that they must be held by a custodian. As Jim2 mentioned you control their disposition upon death by naming beneficiaries. You can name your RLT as a beneficiary but doing so will result in a large immediate tax bill. Most attorneys will advise against naming the RLT as an IRA beneficiary. Having the IRA go directly to a person(s) will generally extend the tax deferral period of the IRA. In some situations splitting an IRA into multiple IRAs each with their own beneficiary(s) is advantageous from a tax perspective. This whole issue can be quite complex and you'll know you've found a competent estate attorney when he/she can explain the best approach for your situation in terms you can understand. IRAs and such are not subject to probate.

Also, seek advice from your attorney regarding who you should name as your successor trustee. This job requires someone who is very diligent and honest and he/she assumes a lot of responsibility and personal legal liability.

ron

Barbaraok · February 3, 2016

The IRAs should move to beneficiaries that you designated when they were set up. The be ficiary has the option to do a rollover into an account in their name that may or may not require them to do RMD. But the administrators of the IRAs can explain it to you.

Randyretired · February 3, 2016

The advice you received do far is consistent with what we were told in setting up our trust. We had a ranch with cattle and we wanted the family to be able to sell the animals and more without waiting for probate. Our attorney set up a partnership to hold titles for most of our assets with a list of partners and succession. There seems to be other ways also. We used an attorney that specializes in estate planning in our state of residence. He told us each state is different and if the law changes an update is necessary. Minimizing taxes requires special treatment and if the law changes more estate changes may be necessary. We felt professional advice was best.