Wills, Revocable Trusts and Transfer on Death

[lawman]

We are having a revokable family trust prepared. We have one child and two grandchildren. We want to leave our entire estate to our child excpt for some money we want to go to the 2 grandchildren ....We are not putting our IRA's in the trust..I can't see any reason I would want to put our brokerage account in the trust but I'm told when the second of us dies it will be easier for our child who will then become the trustee..Seems to me like it would be better to leave the brokerage account to our child via a Transfer on Death document or simply list her as beneficiary..Looking for advice..What am I missing? Thanks

 

[Drake3287]

I just did a revocable trust and yes, the IRA's weren't part of it. We simply had our beneficiaries set up to reflect who was to get what. For example, my wife's IRA has me as the primary beneficiary and my IRA has her. Our three kids are in line with equal shares if we're both to pass. Our attorney did suggest that we put our investment account into the trust though, just like the rest of our financial accounts. Your attorney is the best one to give advice but generally you want to do what ever will be easier for your beneficiaries when the time comes.

 

[VanWinkle]

Revocable trust for bank accounts and taxable brokerage. IRA and Roth IRA set up with children as beneficiaries for maximum flexibility for my children.

 

[lawman]

Revocable trust for bank accounts and taxable brokerage. IRA and Roth IRA set up with children as beneficiaries for maximum flexibility for my children.

So when both me and my wife die the trustee is free to transfer the entire brokerage account to her own account and leave the trust empty if she chooses....correct

 

[VanWinkle]

So when both me and my wife die the trustee is free to transfer the entire brokerage account to her own account and leave the trust empty if she chooses....correct

A trustee will do what is designated in the trust. Upon death, it is irrevocable and can't be changed. The brokerage will get a stepped up basis and be distributed as the trust dictates.

 

[Slim11]

Unless you put mandates on it. Time frames that only certian expenses can be paid out. Or maximum pay outs a year. But then again, no one really has to follow anything. They can get caught later for it. If you dont trust the trustee, maybe they are not the person for the job. Or you can name more then one person as trustee.

 

[pb4uski]

We are having a revokable family trust prepared. We have one child and two grandchildren. We want to leave our entire estate to our child excpt for some money we want to go to the 2 grandchildren ....We are not putting our IRA's in the trust..I can't see any reason I would want to put our brokerage account in the trust but I'm told when the second of us dies it will be easier for our child who will then become the trustee..Seems to me like it would be better to leave the brokerage account to our child via a Transfer on Death document or simply list her as beneficiary..Looking for advice..What am I missing? Thanks

In my experience, the trust is smoother and more seamless. Let's say that your brokerage account is going to 3 people in unequal parts.

With a trust account the recipients need to establish brokerage accounts with the same broker and then the trustee (or successor trustee) just gives the broker instructions on what investments to transfer to each beneficiaries brokerage account, the broker executes those instructions and you are done. Also, the trustee has full access to manage the account until the investments are transferred.

With beneficiary designations, your heirs lose all access and control as soon as the brokerage learns of your death. They have to provide the brokerage with a death certificate and wait for the brokerage to act on it. For my mom's IRA they initially told me that it might take 4 weeks until I raised holy hell and threatened to file complaints with regulators and then it only took a few days.

 

[pb4uski]

So when both me and my wife die the trustee is free to transfer the entire brokerage account to her own account and leave the trust empty if she chooses....correct

It could happen. But then the other beneficiaries of the trust would sue the trustee, win and the trustee would go to prison.

There is a reason it is called a trust and a trustee... you need to have trust.

 

[lawman]

How does the step up in basis work? If the beneficiary fails to fill out the request does it just not get done or are there safeguards in place to make sure it happens?

 

[VanWinkle]

The step up basis is in the tax code, it does not need to be requested.

 

[Slim11]

As far as I know its on the people that inherated the money. You must do your due diligence. So if its a home, get an appraisal as close as possible to the passing date. If its stocks, just get a print out of the stocks from that day.

 

[VanWinkle]

Records of stock prices and fund prices tied to the Date of Death are available. Any increases from that date will require cap gains for the beneficiaries. Appraisal of real estate is needed to set the DOD value.

 

[pb4uski]

How does the step up in basis work? If the beneficiary fails to fill out the request does it just not get done or are there safeguards in place to make sure it happens?

For financial accounts, IMO it is best to have the brokerage of record update the cost records for step-up in basis prior to transferring positions to beneficiaries. When I served as a trustee, I made use that Schwab had the basis updated correctly before I submitted the paperwork to have the positions transferred in kind to the beneficiaries. And since I was a beneficiary I checked mine to make sure that the basis was correct and I communicated the correct basis to each beneficiary so they could check their accounts.

It was easier for me to do it once than have 5 of us doing it later.

 

[lawman]

For financial accounts, IMO it is best to have the brokerage of record update the cost records for step-up in basis prior to transferring positions to beneficiaries. When I served as a trustee, I made use that Schwab had the basis updated correctly before I submitted the paperwork to have the positions transferred in kind to the beneficiaries. And since I was a beneficiary I checked mine to make sure that the basis was correct and I communicated the correct basis to each beneficiary so they could check their accounts.

It was easier for me to do it once than have 5 of us doing it later.

So I assume the brokerage account was alredy in the trust??

 

[pb4uski]

Yes. My parents each had revocable living trusts aka A/B trusts that were common back in the 1990s when the estate tax limit was much lower. As one should when using such trusts, they retitled assets to the name of the trust when the trusts were established. His trust used his SSN as a TIN and her trust used her SSN as a TIN while they were alive.

When he died, we obtained a EIN which became the TIN for his trust and filed 1041's annually but all income was pushed to DM on a K-1 from his trust to her SSN.

When she died I saw to it that the step-up was done as it should and then transferred 1/5 of each position to each of the 5 equal beneficiaries for each trust within 30 days of her passing. I rushed it because she died in late November and I wanted to get everything done before the end of the year so it wold be a clean break. (Yes, I'm a little OCD at times).

 

[Sunset]

With beneficiary designations, your heirs lose all access and control as soon as the brokerage learns of your death. They have to provide the brokerage with a death certificate and wait for the brokerage to act on it. For my mom's IRA they initially told me that it might take 4 weeks until I raised holy hell and threatened to file complaints with regulators and then it only took a few days.

We found it was not very difficult for a brokerage account at Vanguard.
1) heirs do lose access to the deceased account once brokerage is notified of death. (Probably a good thing in some families).
2) Vanguard only needed 1 death certificate supplied regardless of number of beneficiaries.
3) Each beneficiary had to open their own Vanguard account, once done their share was transferred with a few days.

Maybe it's the different brokerages, maybe it's different workers in a brokerage that caused the difference.

 

[pb4uski]

We found it was not very difficult for a brokerage account at Vanguard.
1) heirs do lose access to the deceased account once brokerage is notified of death. (Probably a good thing in some families).
2) Vanguard only needed 1 death certificate supplied regardless of number of beneficiaries.
3) Each beneficiary had to open their own Vanguard account, once done their share was transferred with a few days.

Maybe it's the different brokerages, maybe it's different workers in a brokerage that caused the difference.

Perhaps I wasn't clear but we only needed one dealth certificate for the account , not one from each beneficiary!

 

[EastWest Gal]

My parents had a family living trust, of which I was the successor trustee when my dad passed. His brokerage accounts and his share of the family farm property were in the trust. It made the estate very simple to handle. The trust simplified everything, since the contents did not have to go through probate. The only thing that was not in the trust was dad's checking account, and his IRAs, which I had been managing for a couple of years with a Power of Attorney. The money was transferred to an estate account, and I was able to write checks as Executrix.

The trust was dissolved when everything was transferred to my sister and I, per the trust instructions. I had an appraisal done on the farm property, and my sister got equivalent in cash from the checking account and an IRA. All the stock, treasuries, and mutual funds were split down the middle, as much to the penny as possible. Schwab only required one death certificate as well, and they told me exactly what to write and provide to them. My dad used a personal friend broker (high school classmate!) at WedBush securities, and he only required one death certificate as well, and provided the stepped up basis as well.

 

[badatmath]

In my experience, the trust is smoother and more seamless. Let's say that your brokerage account is going to 3 people in unequal parts.

With a trust account the recipients need to establish brokerage accounts with the same broker and then the trustee (or successor trustee) just gives the broker instructions on what investments to transfer to each beneficiaries brokerage account, the broker executes those instructions and you are done. Also, the trustee has full access to manage the account until the investments are transferred.

With beneficiary designations, your heirs lose all access and control as soon as the brokerage learns of your death. They have to provide the brokerage with a death certificate and wait for the brokerage to act on it. For my mom's IRA they initially told me that it might take 4 weeks until I raised holy hell and threatened to file complaints with regulators and then it only took a few days.

Where can you complain about something like this?

 

[pb4uski]

^^^ I didn't have anyone specific in mind and just the threat seemed to be enough to get things moving, but I would have started with FINRA and the SEC.