Trust questions

[Raymond01]

I have a trust set up so that when my wife and I pass all assets go into the trust. My daughter is the trustee. My question is this:
Is there some kind of document, or can someone explain to me what the steps are once we pass, what happens/needs to happen to the accounts to get them all set up as needed for my 2 kids. Example: Once we pass, the accounts (2 bank accounts, 2 brokerage accounts), pass to the beneficiary, which is in the name of the trust. Then do all those accounts get split between their names into IRA's, and are they inherited IRA's? But for my 2nd child, the trust reads that he gets a certain percentage of his money over 5 year periods. So I'm assuming my daughter will distribute that money, so she needs access to that account. I know they could pay someone to handle, but I like to have everything documented so they know things are going according to my wishes and they aren't being mislead.

 

[Tuirc]

Your lawyer is the best person to answer this. But, since this is a forum and for entertainment purposes only, I'll say, I'm a lawyer, I'm not your lawyer. With that understood:

Your trust should set out all the things you want done and how you want them done specifically, it's one of the advantages of the trust form. You say you have named your daughter trustee. That means your daughter has a fiduciary responsibility to the trust to carry out your directions in the trust. As the trustee, she will have access to all the accounts that name the trust as the beneficiary. She can then carry our the trust's directions for dispersing the funds. Does that answer the question?

(Again, you should talk to your lawyer about this, especially since I haven't seen the trust document and can't know what you put in it.)

 

[cathy63]

You should really have this conversation with the attorney who drew up your trust. A lot depends on what kind of trust it is and how it's funded. Is it a revocable living trust or does it only get established and funded when you die?

You said you have 2 bank accounts and 2 brokerage accounts? Are they in the name of the trust right now? Are they IRAs right now? If they're not already IRAs, then they won't become IRAs when you die.

If you do have IRAs then usually you would name your children as beneficiaries and the IRA custodian would split them into two Inherited IRAs and the trust wouldn't be involved at all. But if you want to control when your second child receives money, then it might make sense to have the trust as beneficiary of your IRAs. Hopefully you discussed the options in detail when you had the trust written up.

You should have your daughter read the trust paperwork now and ask her if she understands what she'll have to do and if it's all documented clearly enough for her. If not, then you can have her meet with you and your attorney to get additional explanations. It's better to do that now than wait until after you die when you'll no longer be around to clarify your intentions.

 

[Ronstar]

Like others have posted, ask your lawyer because your situation would be different than others here.

In our trusts, once DW and I both pass, our trustee will notify our FA to transfer our brokerage accounts into new accounts in the names of our beneficiaries. Our IRAs are not in our trusts and will be transferred into inherited IRAs in the names of our beneficiaries. Checking accounts are set up to transfer on death.

 

[pb4uski]

In the revocable living trusts that I have experience with, the assets were transferred to the trusts when the trusts were established, not upon death. The grantors had the same access to the trust assets while they were alive that they did if they were owned personally and income from those trust assets were reported to the IRS on their personal TINs. I think that is a lot easier rather than to have an extra step upon death.

Usually, these revocable living trusts are established in part to avoid probate.

 

[rk911]

Everything we own that has value was re-titled to our trust except our cars and IRAs.

 

[RPM]

I have a similar/related question. We don't have a trust - yet. All our financial accounts are set up with beneficiaries. Our other assets i.e. house, condo, cars etc will go through probate and be divided between our heirs. How will the costs to maintain those assets (taxes, utilities maintenance etc) be paid if all the financial assets are dispersed directly to beneficiaries presumably before the probate process is completed.

 

[Raymond01]

Thanks for the replies. I should have included more information in my initial question. Here is more info:

We have a revocable trust established. We have 2 adult children. The oldest, my daughter is the trustee. The trust is set up so that the trustee will receive her full amount when we pass. But the other child will receive their money in increments, with a percentage every 5 years. I'm ok with the daughter distributing this amount at those times.

We have 2 bank accounts, we have 2 IRA accounts, we have a joint brokerage account and an inherited IRA account. Currently all accounts have my wife and I as the primary owners. The trust is the beneficiary on all of these accounts. I asked our attorney what are the actual steps that need to be taken with these accounts once we pass. He said it would be best for our daughter to ask our FA. I told him I don't use a FA, I handle all accounts myself as most of my brokerage accounts are in index funds. He said that my daughter should get a FA when she inherits the money and they will help guide her on what to do. Again, I want more details on how the accounts should be handled so I can put instructions in my estate plan.

So my questions are:
- For the IRA's, do they become inherited IRA's for each child? Do the joint accounts just get split? How will the account that is currently an inherited IRA (from my father in law) be transferred to them?

Does all the money go into 2 big pots, one in each child's name/the trust name? Somehow the trustee must still keep control so she can divy out payments every 5 years.

 

[rk911]

- For the IRA's, do they become inherited IRA's for each child? Do the joint accounts just get split? How will the account that is currently an inherited IRA (from my father in law) be transferred to them?

Does all the money go into 2 big pots, one in each child's name/the trust name? Somehow the trustee must still keep control so she can divy out payments every 5 years.

Our atty advised us to not include our IRAs in fhe trust and instead to designated specific individuals or charities as the POD. If your children willi inherit your T-IRAs and/or Roth IRAs they will be treated as inherited IRAs and subject to the depletion rules in effect at that time.

 

[DrRoy]

In the revocable living trusts that I have experience with, the assets were transferred to the trusts when the trusts were established, not upon death. The grantors had the same access to the trust assets while they were alive that they did if they were owned personally and income from those trust assets were reported to the IRS on their personal TINs. I think that is a lot easier rather than to have an extra step upon death.

Usually, these revocable living trusts are established in part to avoid probate.

This is how we handled our revocable trust also. The trust was made the owner of our assets, not the beneficiary, except for the 401K, where it is the secondary beneficiary after my wife.

 

[RetiredHappy]

Our atty advised us to not include our IRAs in fhe trust and instead to designated specific individuals or charities as the POD. If your children willi inherit your T-IRAs and/or Roth IRAs they will be treated as inherited IRAs and subject to the depletion rules in effect at that time.

+1. IRA beneficiaries should be named as persons or charities but not to the trust.

 

[rk911]

This is how we handled our revocable trust also. The trust was made the owner of our assets, not the beneficiary, except for the 401K, where it is the secondary beneficiary after my wife.

Exactly. The only assets we did not re-title to our trust were our cars and only because they're not worth much.

 

[Slim11]

I think reasons to not hold the ira in the trusts is because its taxed at a higher rate. If you transfer it to a trust now, its a distrabution. If you transfered upon death its gets taxed at the trusts rates that are generally higer. The beneficiaries will still have to drain the IRA according to the guidelines. Best to leave that seprate as a direct beneficiary. I would assume if left in the trust it would be up to the trustee or your wishes if its one pot or split. And distra unions will have to be made yearly if you are allready taking your distributions. This is my thinking on it anyway.

 

[Flyfish1]

+1. IRA beneficiaries should be named as persons or charities but not to the trust.

Interesting. We just went through this a few weeks ago with our Atty. He advised my IRA primary beneficiary as my spouse and contingent as my Trust.

 

[Slim11]

I have a similar/related question. We don't have a trust - yet. All our financial accounts are set up with beneficiaries. Our other assets i.e. house, condo, cars etc will go through probate and be divided between our heirs. How will the costs to maintain those assets (taxes, utilities maintenance etc) be paid if all the financial assets are dispersed directly to beneficiaries presumably before the probate process is completed.

I would think the main bank account would be held by the executor to pay all due bills and that account would be settled last. But thats for a will. If you have mostly everything with benificaries, there is probably no need for a trust. Unless you feel you need one.

 

[JBTX]

Thanks for the replies. I should have included more information in my initial question. Here is more info:

We have a revocable trust established. We have 2 adult children. The oldest, my daughter is the trustee. The trust is set up so that the trustee will receive her full amount when we pass. But the other child will receive their money in increments, with a percentage every 5 years. I'm ok with the daughter distributing this amount at those times.

We have 2 bank accounts, we have 2 IRA accounts, we have a joint brokerage account and an inherited IRA account. Currently all accounts have my wife and I as the primary owners. The trust is the beneficiary on all of these accounts. I asked our attorney what are the actual steps that need to be taken with these accounts once we pass. He said it would be best for our daughter to ask our FA. I told him I don't use a FA, I handle all accounts myself as most of my brokerage accounts are in index funds. He said that my daughter should get a FA when she inherits the money and they will help guide her on what to do. Again, I want more details on how the accounts should be handled so I can put instructions in my estate plan.

So my questions are:
- For the IRA's, do they become inherited IRA's for each child? Do the joint accounts just get split? How will the account that is currently an inherited IRA (from my father in law) be transferred to them?

Does all the money go into 2 big pots, one in each child's name/the trust name? Somehow the trustee must still keep control so she can divy out payments every 5 years.

What is the point of the trust if the trustee receives her full amount upon your death?

While you are alive it is a revocable living trust. The trust receives the money as a beneficiary so apparently the RLT does not own the assets. Once you both die (presumably) then the trust becomes irrevocable, then immediately distributes the money to one child her share. For her the trust is serving little purpose except to spell out subsequent beneficiaries if she predeceased you (again presumably )

Typically with a revocable living trust you change the ownership of the accounts to the RLT (except for IRAs). That way there is an easier transition upon incompetence and death. Leaving the money to an RLT as a beneficiary works, but you are losing the above advantages
I’ve heard several experienced estate planning attorneys state that you typically don’t want to mandate distributions from a trust, either immediately as you did with one child or every 5 years as you did with that other. By doing so they lose the protections of the trust. It would make more sense to make the beneficiary co trustee or some other arrangement such that they have some control of when the disbursements happen.

As to IRAs going to the trusts, typically IRAs are left directly to the beneficiary. Sometimes they do go to trusts but care is needed in drafting the trust to get the maximum available inherited IRA RMD stretch. You would potentially see the revocable living trust create two sub trusts, one for each child, and the sub trust is left the money. Sometimes the IRA money may go to a different subtrust, it just depends.

It’s impossible to say and I’m not a lawyer but what you’ve articulated about what your attorney set up is not very good. Giving advice to “get a financial advisor” seems kind of incomplete.

 

[RetiredHappy]

When my trust was first set up, my son was still in his early 20s and it was written that he would get 30% at age 25, 30% at 30 and 40% at 35. The trust would provide for his shelter, health, education and other living expenses until he turned 25. I changed all of that in my next iteration to fully disburse the funds to him as he got older.

 

[Slim11]

What is the point of the trust if the trustee receives her full amount upon your death?

While you are alive it is a revocable living trust. The trust receives the money as a beneficiary so apparently the RLT does not own the assets. Once you both die (presumably) then the trust becomes irrevocable, then immediately distributes the money to one child her share. For her the trust is serving little purpose except to spell out subsequent beneficiaries if she predeceased you (again presumably )

Typically with a revocable living trust you change the ownership of the accounts to the RLT (except for IRAs). That way there is an easier transition upon incompetence and death. Leaving the money to an RLT as a beneficiary works, but you are losing the above advantages
I’ve heard several experienced estate planning attorneys state that you typically don’t want to mandate distributions from a trust, either immediately as you did with one child or every 5 years as you did with that other. By doing so they lose the protections of the trust. It would make more sense to make the beneficiary co trustee or some other arrangement such that they have some control of when the disbursements happen.

As to IRAs going to the trusts, typically IRAs are left directly to the beneficiary. Sometimes they do go to trusts but care is needed in drafting the trust to get the maximum available inherited IRA RMD stretch. You would potentially see the revocable living trust create two sub trusts, one for each child, and the sub trust is left the money. Sometimes the IRA money may go to a different subtrust, it just depends.

It’s impossible to say and I’m not a lawyer but what you’ve articulated about what your attorney set up is not very good. Giving advice to “get a financial advisor” seems kind of incomplete.

The trust wouldnt kick in after both passed. It just kicks in when one passes, as otherwise the money would allready be controlled by the significant other. Otherwise you need two trusts and the second person to pass can change it. Anyways, the reasoning I did mine is I have a minor child and no good guardian that will spend the money with care. So, its dolled out for housing, insurance, school, and when mile marks are hit money gets paid out. It also accounts for if the home needs repairs or a need to relocate happens. This can all be done with a trust. So there may be a need , we just dont know it.

 

[Raymond01]

I reviewed my IRA beneficiaries and they are set up like this:
- My wife is the primary beneficiary
- The trust is the contingent beneficiary

The purpose of the trust is twofold:
1. To control spending by the one child
- distributes the money gradually
- prevents a child from withdrawing everything immediately

2. Asset protection. Trusts can help protect inheritance from:
- divorce
- creditors
- lawsuits

 

[RetiredHappy]

I reviewed my IRA beneficiaries and they are set up like this:
- My wife is the primary beneficiary
- The trust is the contingent beneficiary

The purpose of the trust is twofold:
1. To control spending by the one child
- distributes the money gradually
- prevents a child from withdrawing everything immediately

2. Asset protection. Trusts can help protect inheritance from:
- divorce
- creditors
- lawsuits

Are you thinking of irrevocable trust? For (2), only irrevocable trusts are protected that way.

 

[Slim11]

Are you thinking of irrevocable trust? For (2), only irrevocable trusts are protected that way.

I think hes thinking of his kids , after ray passes his revocable trust becomes irrevocable. While I am not sure of the protections from these things, the other part that was stated was exactly why I did mine. While , for me , the ira still goes to the kido, I left a letter stating to use that for collage and the like untill the trust will pay you anything. So a degree is needed to get to the next level. Like anything else, its the best I can do if I am not here. It may not be followed. I can not control it all after I am dead.

 

[JBTX]

I reviewed my IRA beneficiaries and they are set up like this:
- My wife is the primary beneficiary
- The trust is the contingent beneficiary

The purpose of the trust is twofold:
1. To control spending by the one child
- distributes the money gradually
- prevents a child from withdrawing everything immediately

2. Asset protection. Trusts can help protect inheritance from:
- divorce
- creditors
- lawsuits

Ok so you have regular assets and IRAs going into this trust upon your death. Most likely the inherited IRAs must be depleted within 10 years. Whether there are RMDs during those 10 years depends.

However you are mandating that one child’s trust depletes immediately and the other every 5 years. So I assume that means half of the IRAs are depleted right away and part of the other half in 5 years? That seems suboptimal, but I’m not exactly sure how that works.

You said the purpose of the trust is to:

protect inheritance from:
- divorce
- creditors
- lawsuits

The trust can’t do that after it has forced money out of it, thus another disadvantage of mandated distributions

 

[ky-mike]

Assuming children are adults, they would generally have a 10 year window to empty an inherited IRA. A trust also generally has a 10 year window to empty an inherited IRA. No downside here with trust being beneficiary as long as RMDS received by the trust are distributed to trust beneficiaries annually. Unless you don't care about tax minimization, you might want to think differently about the 401K inherited by the trust being distributed 1/2 to the trustee immediately as that would all be current taxable income. Better to have the trustee as a 50/50 beneficiary with the trust and let her half be inherited directly by her with the other half inherited by the trust with all of the trust portion going to beneficiary #2.

You may not need to involve a FA, but I certainly would involve a CPA to ensure that you understand income tax implications of how your wealth passes to your children.

 

[Lewis Clark]

I have a similar/related question. We don't have a trust - yet. All our financial accounts are set up with beneficiaries. Our other assets i.e. house, condo, cars etc will go through probate and be divided between our heirs. How will the costs to maintain those assets (taxes, utilities maintenance etc) be paid if all the financial assets are dispersed directly to beneficiaries presumably before the probate process is completed.

For situation with multiple heirs, I've seen attorneys advise to have one account that does NOT have a POD/TOD designation. That way, the funds in this account are available to the executor or trustee to pay estate expenses before the remains are distributed to the heirs.

 

[srblanco7]

Our atty advised us to not include our IRAs in fhe trust and instead to designated specific individuals or charities as the POD. If your children willi inherit your T-IRAs and/or Roth IRAs they will be treated as inherited IRAs and subject to the depletion rules in effect at that time.

We were advised the same. Our brokerage account and house into a revocable trust that becomes irrevocable upon the passing of the 2nd of us. Traditional IRAs go directly to our kids upon the 2nd of us passing.

My understanding is that if our traditional IRA were to go into the trust, it would be subject to trust income tax rates which are (likely) significantly higher than personal income tax rates.

Admittedly, I’m less clear on the pros/cons of the trust being the beneficiary of our Roth IRAs. It seems to have potential benefit related to asset protection. What are the downsides?