Dumb ? - what is an asset for purposes of a trust

[badatmath]

I am supposed to be making a list of assets for a trust. So I write down my house and my savings and so on.

Is life insurance an asset? A 401K? I don't have policy numbers or even account numbers for this I just log on at w*rk. And the life ins is term and will end when I retire - no cash value. I suppose I could name the trust as a beneficiary via the website but I don't even think they allow non-persons. Obviously I can't call anyone who might help at this hour so I thought I'd turn to you.

Google was iffy because my 401k has a beneficiary but then so does my savings account.

 

[Morgan22]

What kind of trust/what is the intended purpose?

Personally, I would only put my house and car in a revocable trust if I could not do a TOD on them so my kids could avoid probate. (My current state allows Transfer on Death for House and cars). All accounts that can have named beneficiaries normally are not put in a trust. You name the people or charities that you want them to be left to. Then they don't pass through probate. Easy peasy.

One reason you would name a trust as beneficiary for your retirement and other $$ accounts would be if you were afraid the person receiving the funds are not able to make good financial decisions and blow it all in the first year or something along those lines. I think that type of trust would be called a spendthrift trust.
I'm sure others may come along and give other reasons.

 

[RobbieB]

If you have life insurance, you should already have a beneficiary. Term life insurance is not an asset.

All assets in the name of the trust avoid probate.

 

[pb4uski]

You could name the trust as the beneficiary of your term life insurance policy. You might do that if the policy only allows one beneficiary but you want the life insurance death benefit to go to multiple beneficiaries. Or if the life insurance death benefit is intended to provide funds to pay off debt on trust assets to unencumbered them or to provide liquid assets to the trust.

 

[badatmath]

Hmm yeah maybe I need to fire my lawyer who I just met. I don't see that I need a trust at all but the point is to avoid probate. He was not encouraging about making a will only and I said its because you make more from a trust and he said well actually I make more on probate. IDK. Since all things have beneficiaries except house I do not see that I have any assets at all - for this purpose.

 

[Souschef]

The only reason I had a trust was when the Inheritance tax was at $1 Mil. It was a PITA especially when my wife died and it had to be split up into 2 trusts.
The trust is now closed. All our assets either are TOD or have beneficiaries.
BUT we did visit an estate lawyer to set up an estate plan. This included POA's for medical and financial matters and pour over wills.

 

[pb4uski]

Hmm yeah maybe I need to fire my lawyer who I just met. I don't see that I need a trust at all but the point is to avoid probate. He was not encouraging about making a will only and I said its because you make more from a trust and he said well actually I make more on probate. IDK. Since all things have beneficiaries except house I do not see that I have any assets at all - for this purpose.

It all depends on the nature of your assets. I spent some time doing some DIY estate planning about a year ago.

If only one of us dies, then the surviving spouse inherits all assets through either joint ownership or beneficiary designations... nothing needs to go through probate at all.

If we die simultaneously then it is a different story.

The vast majority of our estate... 65%... are financial accounts (bank, brokerage, traditional and Roth IRAs, HSAs, etc) all of which can have our kids as designated contingent beneficiaries and avoids probate.

By coincidence the two states that we live in, Florida and Vermont, each allow enhanced life estate deeds aka Lady Bird deeds that we put in place. In short, we transferred the ownership of the properties to our two kids but also jointly retained an enhanced life estate... the right to use the property, rent it, sell it and keep the proceeds, etc for as long as one or the other of us are alive... essentially all the rights that we have now as owners. When the second of us dies, then the kids' ownership is no longer encumbered by the rights that we retained. It's in effect like a beneficiary designation but for real property. So that took care of another 25%.

So that takes care of 90%.

Another 1% are ibonds are held by trusts.

The remaining 9% will require a little effort. About 4% are ibonds held in our personal accounts with the surviving spouse as beneficiary. If we die simultaneously, DD will have to deal with it. Another 3% are the car, truck, boat, jet-ski, camper, etc that the kids can go to DMV with a death certificate and get retitled in their name.

 

[Morgan22]

Hmm yeah maybe I need to fire my lawyer who I just met. I don't see that I need a trust at all but the point is to avoid probate. He was not encouraging about making a will only and I said its because you make more from a trust and he said well actually I make more on probate. IDK. Since all things have beneficiaries except house I do not see that I have any assets at all - for this purpose.

Then it sounds like you may only want to put your house in a revocable living trust since everything else has named beneficiaries. The revocable trust will allow your beneficiaries to avoid having to put the house through probate.

 

[Dash man]

We are in the process of moving five properties and our taxable accounts into two trusts, one for DW and one for me, tenants in common. Our retirement accounts have each other as beneficiaries, with two trusts to be created for the boys once we’re both gone.
We have properties in three states, so a trust will avoid probate in each state.
Our taxable accounts will be split between the boys, smaller shares to siblings and a gift to charity. One of the boys doesn’t handle money well, so Schwab will manage his trust providing income until he’s more knowledgeable and comfortable handling it. It’ll also protect him from his estranged wife.
The IRAs will retain their legal protections even after RMDs are made.
The trusts also are set up to take full advantage of the spousal portability of the estate tax exemption. When the first of us passes, half the estate will be in a irrevocable trust for the benefit of the surviving spouse. It doesn’t matter this year, but may matter in 2026.

 

[pb4uski]

It looks like Arizona has transfer on death deeds for real estate.

A beneficiary deed is like a regular deed you might use to transfer your Arizona real estate, but with a crucial difference: It doesn't take effect until your death. At your death, the real estate goes automatically to the person you named to inherit it (your "beneficiary"), without the need for probate court proceedings. (Ariz. Rev. Stat. Ann. § 33-405.) In other states, this deed is also commonly called a transfer on death deed.

https://www.willmaker.com/legal-manual/transfer-on-death-deeds-arizona.html

It still might made sense to have a will... it will just catch anything without a beneficiary designation. But you can probably just buy Willmaker and DIY.

YMMV and above is only if you are darn, tootin sure that everything other than the house is beneficiary designation.

 

[RobbieB]

A will is usually included in the "trust package"

 

[badatmath]

Yep darn sure all other things are TOD/POD except the house. Not like I have such a vast amount of assets I will forget.!! Unfortunately.

I asked why I can't just get the benef deed + will + POA etc and never got much of an answer just "a trust is better". Better for him I assume.

But yeah the trust did come with the will etc. It just the trust part I question the need for - not the rest. Why is everything so much trouble . . .

Maybe because I am not that interested in this process and sick to death of this new bp med that makes me feel crappy. They have agreed I can wean off and try something else.

 

[SecondCor521]

The remaining 9% will require a little effort. About 4% are ibonds held in our personal accounts with the surviving spouse as beneficiary. If we die simultaneously, DD will have to deal with it. Another 3% are the car, truck, boat, jet-ski, camper, etc that the kids can go to DMV with a death certificate and get retitled in their name.

If the remaining amount is small enough, one can avoid full probate in my state by either doing a small estate affidavit and/or simplified probate. It is my understanding that many states have such laws.

So in my state, even a revocable living trust may not be necessary to effectuate the transfer of property and still avoid probate.

 

[pb4uski]

If the remaining amount is small enough, one can avoid full probate in my state by either doing a small estate affidavit and/or simplified probate. It is my understanding that many states have such laws.

So in my state, even a revocable living trust may not be necessary to effectuate the transfer of property and still avoid probate.

I agree and thought of including that but just didn't want to further complicate the situation.

 

[pb4uski]

....I asked why I can't just get the benef deed + will + POA etc and never got much of an answer just "a trust is better". ...

Hindsight is 20/20 but the followup question would be "why is it better"?

It sounds like all is done, so you can always consult another lawyer about a beneficiary deed and just not use the trust.

 

[Spock]

....
Is life insurance an asset? A 401K?
...

401Ks and IRAs can not be held by a trust and must be titled to an individual even if the individual has been declared incompetent by the courts.

 

[steelyman]

I’m also curious about this topic. There was a recent (Nov 17 ‘22) podcast by Ed Slott about naming trusts as beneficiaries.

My question is: what are the downsides of establishing a trust when not all assets are retitled to it? (apart from expenses involved with creating the trust in the first place)

https://podcasts.apple.com/us/podca...ate-with-ed-slott-jeffrey-levine/id1652669094

[ADDED] This is one of the issues muddled by changes related to the SECURE act I believe (elimination of “stretch”).

 

[Trooper]

It all depends on the nature of your assets. I spent some time doing some DIY estate planning about a year ago.

I am also in the process of deciding on a DIY approach. I am leaning toward not needing a trust, for the same reasons you are.

If only one of us dies, then the surviving spouse inherits all assets through either joint ownership or beneficiary designations... nothing needs to go through probate at all.

If we die simultaneously then it is a different story.

Exactly.

The vast majority of our estate... 65%... are financial accounts (bank, brokerage, traditional and Roth IRAs, HSAs, etc) all of which can have our kids as designated contingent beneficiaries and avoids probate.

If I understand correctly your bank and brokerage accounts cannot have beneficiaries, but can be titled as POD/TOD, which avoids probate. Other types of accounts like IRAs, 401(k)s, annuities and life insurance can have beneficiaries.

 

[Trooper]

Maybe because I am not that interested in this process and sick to death of this new bp med that makes me feel crappy. They have agreed I can wean off and try something else.

I hope you feel better!

It looks like Arizona has transfer on death deeds for real estate.

Yes we do, and having one will avoid probate. Just went through a personal estate case where one was involved.

 

[Trooper]

My question is: what are the downsides of establishing a trust when not all assets are retitled to it? (apart from expenses involved with creating the trust in the first place)

There is something called a "pour-over will" that gets included with the trust; this will provides instructions for any asset not included (funded) in the trust.

 

[ncbill]

If the remaining amount is small enough, one can avoid full probate in my state by either doing a small estate affidavit and/or simplified probate. It is my understanding that many states have such laws.

So in my state, even a revocable living trust may not be necessary to effectuate the transfer of property and still avoid probate.

Here the small estate is only for those with $20k & under in assets and the filing fee is $120 versus $150 for larger estates.

About the only perk here with a small estate is that the executor doesn't have to publish a "notice to creditors" in the local paper.

Since I was also serving as caregiver while they were living for the last two estates I handled I setup revocable living trusts.

The lawyer handled transferring any real estate into the trust, I used their DPOA to move any financial assets.

When they died I had the family come through and take what they wanted from the house with the rest being hauled away to the dump.

And after the house (only significant asset) sold I distributed the proceeds to the beneficiaries literally a day after the check cleared.

Then filed the final trust return the following year with everything going into the shredder three years afterwards.

 

[badatmath]

Hindsight is 20/20 but the followup question would be "why is it better"?

It sounds like all is done, so you can always consult another lawyer about a beneficiary deed and just not use the trust.

No, it is not done yet. I made a follow up appointment and have papers to fill out but no money has changed hands nothing written or signed. I did ask 3 times "why" and never got much of an answer but I suppose I really didn't want to think I had to start over with a new lawyer.

If I understand correctly your bank and brokerage accounts cannot have beneficiaries, but can be titled as POD/TOD, which avoids probate. Other types of accounts like IRAs, 401(k)s, annuities and life insurance can have beneficiaries.

Yes, I think that is true as what I currently have.

There is something called a "pour-over will" that gets included with the trust; this will provides instructions for any asset not included (funded) in the trust.

He didn't mention that but it is one of my concerns because I am actually not planning to die just yet and I would anticipate having to acquire or dispose of assets in the future.

I had a friend recently inherit from parents where assets were left out of the trust and not accounted for and it seems to be a big hassle. I could not tell you the details really as said friend is not very aware of such things and would not be able to explain accurately.

I left a vm this morning for a new lawyer to see what they say.

 

[Spock]

On the other hand, what does it hurt to have a trust?
Trusts became popular when death/estate/inheritance taxes where high as the trust could be split upon death of one of the trustees.
Build Back Better along with the resurgence of Eat the Rich was supposedly going to lower the estate tax thresholds again. I didn't pay attn as I'm no where close to it. But then all the tax increases were only supposed to hit incomes above 400K too...
Deficits are up. Taxes aren't going down.

Dad had a revocable trust setup. The benefit of it was when we had to take him to court to get him declared incompetent, getting a sole successor trustee to replace Dad as trustee was relatively easy. Putting most of the assets into the trust lowers the cost of the required conservator insurance bond required because the bond only covers assets outside the trust.
After dealing with blood sucking attorneys (my atty, his atty, and the temp 3rd party conservators atty) for the last 3 years on the conservatorship, having a trust to avoid probate looks cheap in comparison.

 

[Trooper]

I left a vm this morning for a new lawyer to see what they say.

Good. When you meet with him/her, explain that you want an estate plan, but are undecided between a will and a trust and would like to clearly understand the advantages and disadvantages of each. Also ask what the relative costs of updating each along the way are, as events in your life may dictate.

On the other hand, what does it hurt to have a trust?...

...Dad had a revocable trust setup. The benefit of it was when we had to take him to court to get him declared incompetent, getting a sole successor trustee to replace Dad as trustee was relatively easy. Putting most of the assets into the trust lowers the cost of the required conservator insurance bond required because the bond only covers assets outside the trust.
After dealing with blood sucking attorneys (my atty, his atty, and the temp 3rd party conservators atty) for the last 3 years on the conservatorship, having a trust to avoid probate looks cheap in comparison.

I don't have the expertise to say whether a trust helped in your situation. To answer your first question, trusts can be an overly complicated solution to a less complicated requirement. Trusts excel when the deceased have non-standard wishes for asset distribution, such as Johnny can't touch the money until he is 25, or Sally needs to complete a financial literacy class prior to distribution.

OTOH if distribution of assets is relatively straightforward, and all assets are titled properly or have the correct beneficiaries, I don't see the need for a trust.

 

[OldShooter]

Two things getting mixed up here (again): A revocable trust (marketingspeak: "living trust") is created and exists prior to the grantor's death. It becomes irrevocable at death and its terms determine what happens to its assets.

After death, an estate plan (whether or not a rev trust existed) can create any number of irrevocable trusts. (Irrevocable because the grantor is dead)

The mechanical structure of this stuff, language and documents, is why expert help is needed. There are lots of what-ifs and I-forgots that need to be dealt with and lots of I's to be dotted and t's to be crossed. For example, in our estate plan there is a sentence that solves the simultaneous death situation by stating something like "In the event of simultaneous death, Ruth is considered to have predeceased Fred." This lets the train roll down the tracks as planned.

Also, a couple of places here there are comments implying that a trust (rev trust) is an alternative to a will. It is not. There always needs to be a will. A rev trust is an add-on.

I had my gall bladder removed a month ago. I hires some experts to handle this, just as we hired an expert to do our estate plan. DIY is not a rational option in either case.