By Beth A. McDaniel, JD, CELA

 

Individuals and couples include revocable living trusts as part of their estate plan for a variety of reasons including probate avoidance, privacy, added incapacity protection, and estate tax planning (for couples).

 

For such an estate plan to be effective, all assets which would be subject to probate need to be retitled into the name of the trust.

 

Examples of such assets include real property; investment accounts; savings bonds; CDs; stocks; time share interests; bank accounts; interests in a partnership, corporation, or LLC; oil, gas, and mineral rights; and unsecured loans. In Washington, tangible personal property (vehicles, jewelry, household items, clothing, tools, art, etc.) is included in revocable trusts automatically via a general trust provision.

 

If it is discovered following the death of someone who had a Trust that one of the above assets was not properly retitled to the Trust, a probate may be required. This, of course, requires additional expense and may thwart the desire for privacy because of the requirement to provide notice of the probate to individuals who were specifically excluded as trust beneficiaries.

 

It is also possible for assets to pass to the Trust via beneficiary designation, including non- qualified annuities, life insurance, or investment accounts.

 

It is most common to not name the beneficiary of a 401K or IRA as a revocable trust, especially if the beneficiary is the survivor spouse or adult children. 

 

It is possible, however, to name a Trust as the beneficiary of a 401K or IRA with the same required minimum distribution requirements if the Trust contains qualifying language. Naming a Trust as the beneficiary should be considered when there is a minor or disabled beneficiary. In addition, a Trust can be the beneficiary of an IRA or 401K when it is a second marriage, and the account owner wants his or her spouse to receive the required minimum distributions but also assure that his or her children receive the remainder should the survivor spouse die with funds remaining in the 401K or IRA. Note that in most cases the decedent’s interest in the 401K rolls over to an inherited IRA.

 

It is important that your Durable Power of Attorney document allows for your agent to transfer assets or change beneficiary designations to your Trust if necessary.

 

Yes, transferring all the above assets to a Trust takes time and effort; however, a ‘fully-funded’ Trust is certainly a gift to your named Trustee – and trust beneficiaries — as it will make your estate a lot less time-consuming and expensive to administer.

 

 

For more information, or to schedule an appointment, please call 425-251-8880 or email info@bethmcdaniel.com

 

First Published: May 2023