Revocable Living Trust - What to include in it?

[California]

We just established a Revocable Living Trust and re-titled our home and ranch deeds to be owned by the Trust.

Likewise we opened a Fidelity account owned by the Trust, and moved our mutual funds into it. We understand that IRAs have to stay outside the Trust, so we'll keep the old Fidelity account to host them.

Now the question: Our trust attorney has guided us expertly through three trust or estate distributions. But she said move everything we use for current transactions - credit card, credit union account where we get cash from their ATM, pension and retirement automatic deposits, utility bills set on autopay - into new corresponding Fidelity sub-accounts under the Trust, and basically do everything there.

Then reading financial columnists online, I saw advice to use the Trust only for the large assets that will go to the heirs, and continue using existing accounts for everything else, as before.

In the state of California, for instance, you may hold up to $166,250 in assets, property, or accounts outside of a Trust and still avoid Probate. But if you have over $166,250 in your account, you should consider transferring it to your Trust so that your Beneficiary can receive their inheritance outside of Probate.

(We have 'pour-over' wills that say personal assets go to the Trust after the last Trustee has died.)

Our daily living expense transactions are well under that $166k limit.

Any advice? Move everything into Trust-held sub accounts, or continue unchanged? How have others handled this?

Anyone have links to expert advice that would broaden my understanding?

 

[ponytug]

Congratulations on getting things in order!

My folks received the advice to put as much as possible into the trust for two reasons;
1) it makes the assets and liabilities easy for your heirs to find, and
2) there are fewer loose ends for the heirs to clean up.

Given the issues that we had with some folks that shall remain unnamed, I would second that advice. The effort it takes to convince some hide bound, pea brained keeper of the keys can be incredible. Like a year plus after we started, with all of the paperwork in order to begin with, and the keeper of the keys kept repeatedly asking for information that they already had, or requests that were impossible, like dual notarization on a form of theirs that only had space for one notary, or saying that some other group had final say, but the keeper of the keys could neither disclose said group to us, nor talk them either. We finally hired an attorney after eighteen months.

Don't think for a moment that just because some group was easy to deal with when you were alive makes them easy to deal with later. Some small folks were great, the big folks were mostly great, and some were obstreperous just because.

All the best,

Peter

 

[Tpondel]

You paid the attorney for their advice. Why not follow it or at minimum, share what you read and get their take.

 

[newbury]

Don't think for a moment that just because some group was easy to deal with when you were alive makes them easy to deal with later.

Having been through many an estate settlement when my wife was an executor it seems some people take it as the start of a race to see who can get the biggest piece of the pie, by hook or crook.

 

[ponytug]

Having been through many an estate settlement when my wife was an executor it seems some people take it as the start of a race to see who can get the biggest piece of the pie, by hook or crook.

Unfortunately, so true.

Luckily in our case, it was the heirs collectively against a group obligated to pay upon death, who resisted for close to two years. It was just crazy obstreperous. I try not to attribute malice to things that can be explained by stupidity. It was hard to believe at first, but I slowly came to the opinion that in this case, it was by design and intent. They are a well known, established group, and it caused the heirs to change our own planning to avoid them. Silky on their part.

All the best,

Peter

 

[California]

Unfortunately, so true.

Luckily in our case, it was the heirs collectively against a group obligated to pay upon death, who resisted for close to two years. It was just crazy obstreperous.

Ah I see you've dealt with Wells Fargo!

The have a special 'prey on widows and orphans' branch in Oregon that is designated to handle deceased customers affairs - which is simply a black hole.

Twice I sent them the requested original death certificates and a request for a check to close Dad's checking account. Never acknowledged, and never answered email or phone, not even 'leave a recording' as I recall. The balance was a few hundred $ so I finally wrote a check payable to Dad's Trust, to make it clear I wasn't self-dealing, leaving less than a dollar in the account.

Then discarded all the low balance fee invoices that arrived over several months.

Similar bad dealing on 95yo Mom's, and FIL's accounts. I intercepted and prevented several new WF credit cards that Mom never ordered, after she asked me to investigate a $75 'protecting your credit' monthly fee that appeared on one of them. FIL had five new WF cards open that my wife shut down. He said he had never requested them and was baffled with all the monthly statements he received. That unrequested cards issue for elders made the papers a year later and WF paid some substantial fines.

 

[2manyrocks]

California may have its own peculiar trust/probate rules so on-line advice that isn't California specific could be badly mistaken.

Generally, the basic problem I see is that people establish a living trust, but fail to put some valuable asset in it which means the heirs end up in probate anyway to deal with that asset.

The other problem is banks have their own rules about accounts and may open an account in the name of the revocable trust if you go to the bank in person and request the change. But if you try changing the account any other way with a POA or anything short of a court order, banks will generally resist doing it.

 

[California]

My folks received the advice to put as much as possible into the trust for two reasons;
1) it makes the assets and liabilities easy for your heirs to find, and
2) there are fewer loose ends for the heirs to clean up.

Agree! In Dad's last years we took a 50 year mess of original stock certificates, dividend reinvestment statements, etc etc into a Fidelity office and they sorted it all out for us. This made administering his estate as Successor Trustee far simpler. There were a couple of issues but not the mess I would have had trying to cash out all those original stock certificates individually with none related to a broker. (Dad was really Old School, he came of age in the Depression, didn't trust brokers).


I think you're right, to get all the everyday household stuff into the Trust. It won't make a difference for us but it will for our daughter who will eventually have to wind down everything.

 

[Sigarms]

Every banking / savings account, 401K along with every insurance policy along with all assets have been placed into our Revokable Living Trust.

 

[MoKelly]

Every banking / savings account, 401K along with every insurance policy along with all assets have been placed into our Revokable Living Trust.

I’m surprised you put 401k assets in a Trust.

If you retitled the 401k from your name to the Trust name there could be tax issues. I’ve always been told 401k assets need to be separate - outside the Trust.

 

[duffer]

My atty's rule of thumb is put your "assets" in the trust, leave the liabilities in joint or indv names, outside of the trust.

ANY "qualified" account (IRA's 401k's, 403B's, 457 plans, etc) and any other qualified plan that has a beneficiary designation should not (nor can it) go into the trust. Some people make the Trust a beneficiary of the IRA/401k, which is questionable for tax reasons.

 

[Sigarms]

I’m surprised you put 401k assets in a Trust.

If you retitled the 401k from your name to the Trust name there could be tax issues. I’ve always been told 401k assets need to be separate - outside the Trust.

I stand corrected... our Trust was only listed as the primary beneficiary of the 401K in case of our death, this was the advice our lawyer gave us.

So no, the 401K is not in the Trust. Sorry for misspeaking.

 

[California]

What I've read is IRA's(etc) are considered sold, cashed out, and taxable in full, upon death if the beneficiary is a Trust.

In contrast, IRA beneficiaries can spend down the inherited IRA over ten years paying tax only on the amount liquidated each of those years, if the IRA passes to them outside the Trust.

 

[9973720wb19]

it seems to have all or most transactions going through a trust is more of a tax and accounting play than legal. I believe at the end of each tax year, you'd have a choice to take a distribution from the trust and pay the taxes on the personal level or leave the proceeds in the trust and have the trust pay the taxes. You can make that decision each year based on what why would be less in taxes.

 

[ponytug]

it seems to have all or most transactions going through a trust is more of a tax and accounting play than legal. I believe at the end of each tax year, you'd have a choice to take a distribution from the trust and pay the taxes on the personal level or leave the proceeds in the trust and have the trust pay the taxes. You can make that decision each year based on what why would be less in taxes.

That's not the case with most trusts that I have experience with, but I'm not a trust attorney.

If you inherit an IRA as a non-spouse, of age individual, there is a ten year draw down from the death of the last trust holder, with required minimum distributions, like other IRAs, but those RMDs and the ten year clock start at the death. Like any withdrawal from an IRA, you can decide when and how much, though for inherited IRAs, the penalties can be 25% of what should have been withdrawn.

All the best,

Peter

 

[ericm979]

Ah I see you've dealt with Wells Fargo!

Bank of Satan.

It took the local branch 9 months to close my mom's account after she passed. It was like they'd never dealt with a deceased person before. Every time I talked to them I got a different answer and was sent to a different person.

Similar bad dealing on 95yo Mom's, and FIL's accounts. I intercepted and prevented several new WF credit cards that Mom never ordered, after she asked me to investigate a $75 'protecting your credit' monthly fee that appeared on one of them. FIL had five new WF cards open that my wife shut down. He said he had never requested them and was baffled with all the monthly statements he received. That unrequested cards issue for elders made the papers a year later and WF paid some substantial fines.

They sold Mom some bogus "life insurance" that was charged directly out of her account. When I asked the bank for help identifying the mystery charges they would not lift a finger. I finally found out enough to figure out who they were but by then she'd passed. Of course they refused to pay out.

Companies who prey on old people like that need to have their executives jailed and their personal assets seized. Not some piddly fines that the shareholders pay.

 

[9973720wb19]

That's not the case with most trusts that I have experience with, but I'm not a trust attorney.

If you inherit an IRA as a non-spouse, of age individual, there is a ten year draw down from the death of the last trust holder, with required minimum distributions, like other IRAs, but those RMDs and the ten year clock start at the death. Like any withdrawal from an IRA, you can decide when and how much, though for inherited IRAs, the penalties can be 25% of what should have been withdrawn.

All the best,

Peter

I'm not an estate attorney or an accountant. I believe IRAs function under separate rules from a Trust by nature. IRAs provide the same legal protection from creditors and lawsuits, but they are individual asset were a trust can have several beneficiaries. A Trust will have taxable income or loss and is required to file and pay taxes stemming from the assets held/owned by the trust. In most cases, income taxes at the trust level is higher than an individual especially if the beneficiaries are retired and have little to now income on the personal level. So the beneficiary can chose to take the distributions and pay the taxes on the personal level. If OP has income and expenses from the operations of the assets (his home and ranch and other liquid investments) owned by the trust, it all must to go through the trust because the trust now owns the house, ranch/business.

 

[MoKelly]

it seems to have all or most transactions going through a trust is more of a tax and accounting play than legal. I believe at the end of each tax year, you'd have a choice to take a distribution from the trust and pay the taxes on the personal level or leave the proceeds in the trust and have the trust pay the taxes. You can make that decision each year based on what why would be less in taxes.

I believe if it’s a Revocable Trust the creator of the Trust pays all taxes. There is no “choice”.

 

[newbury]

Wells Fargo seems to be one of the few "financial institutions" I get phishing scam from. Never even ever had an account with them.

 

[California]

I believe if it’s a Revocable Trust the creator of the Trust pays all taxes. There is no “choice”.

I think that's correct, the trust becomes its own taxable entity only after the original trustees are gone.

And getting a TIN, Taxpayer Identification Number, for the Trust is something the Successor Trustee needs to do immediately.