Menu

Revocable Living Trust as Beneficiary

Home Estate Planning Revocable Living Trust as Beneficiary

  • Avatar davescott1 
    Participant
    Status: Other Professional
    Posts: 2
    Joined: 08/23/2018

    We have a revocable living trust and are trying to determine the pros and cons to listing the trust as the beneficiary of our 401K, Roth IRA and Term Life Insurance.   We have no children and anticipate any remaining funds going to surviving spouse first, then to siblings, nieces and nephews and charity.   As long as it doesn’t affect the tax and withdrawal options, we thought it a good way to be able to divide things up via the trust verbage rather than dividing up beneficiaries on each tax advantaged and life insurance account.   Any pros and cons you can share with us?

    #145938 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 964
    Joined: 01/11/2017

    There are pros and cons. Make sure your trust is written such so that beneficiaries can elect to stretch withdrawals from retirement accounts over their life expectancy; believe that is called a see through trust. We have made our trust beneficiary or owner of everything since we have minor children.

    #146040 Reply
    Avatar AlexxT 
    Participant
    Status: Physician
    Posts: 897
    Joined: 01/13/2016

    This type of question shouldn’t be asked of unqualified strangers on the internet.  This is why you need to have a reliable trust attorney.  They get paid to go over the pros and cons with you and see if special situations or options apply.  They don’t get paid to print out the forms;  that’s free.  They get paid to know which forms to print.

    As FireShrink mentioned, you need special language for inherited IRAs in the trust.

    I believe that life insurance should be inherited directly, otherwise it will be subject to estate taxes ( which may not be a problem for you right now ), or else goes into a separate trust.  Again, I recommend you just bite the bullet and go to an estate attorney.  Your kids’ future is worth the few thousand dollars it will cost you.

     

    #146092 Reply
    Avatar davescott1 
    Participant
    Status: Other Professional
    Posts: 2
    Joined: 08/23/2018
    Earnest refinancing bonus

    Thanks for your thoughts.   I understand your point.   My concern is that we have a trust created by an estate planning attorney and in retrospect (it is several years old) I’m not sure he knew what he was doing.   He didn’t go over any pros or cons with us.   I explained what we wanted and he said he would do it.   That was the last time we saw the attorney and we only worked with his Paralegal after that . . . and she wasn’t so sharp.  So I need better, more direct questions to ask when we have it reviewed so I’ll know if it really is set up to accomplish our goals.   Obviously we won’t be going back to the same one as before.   Any other ideas in addtion to the “see through” trust are appreciated.    I’m trying to educate myself a bit before going in again.

    #146592 Reply
    Avatar AlexxT 
    Participant
    Status: Physician
    Posts: 897
    Joined: 01/13/2016
    Thanks for your thoughts.   I understand your point.   My concern is that we have a trust created by an estate planning attorney and in retrospect (it is several years old) I’m not sure he knew what he was doing.   He didn’t go over any pros or cons with us.   I explained what we wanted and he said he would do it.   That was the last time we saw the attorney and we only worked with his Paralegal after that . . . and she wasn’t so sharp.  So I need better, more direct questions to ask when we have it reviewed so I’ll know if it really is set up to accomplish our goals.   Obviously we won’t be going back to the same one as before.   Any other ideas in addtion to the “see through” trust are appreciated.    I’m trying to educate myself a bit before going in again.

    Click to expand…

    Ah, now i see.  Sorry.

    Well, I had the same experience.  I went to an estate attorney recommended by my CPA.  He drew up some documents and sent them to me to look over prior to my coming in to have them signed and notarized.  As I looked them over, I saw that he had done the trusts all wrong in terms of the A-B structure. ( Mind you, I’m not an attorney, nor had I ever done this before ). When we came in to sign them, before I could say anything, the attorney said “sorry, I did this wrong, I’ll have to re-write the trusts”.   So I never was comfortable with that set of documents even after he corrected them.

    I re-did the trusts with a new attorney 10 years later.  The new attorney seemed way more organized, knowledgeable, and experienced, and things went more smoothly, although they did take a along time ( lengthy time between revisions ).

    All I can suggest is that you may need to find a better attorney.   I have heard many complaints from friends about their estate attorneys.  Maybe it’s a field that doesn’t attract the best and brightest.

    Specifically, though, I can tell you that IRAs need special language to be managed inside a trust.  If any of your accounts have a beneficiary “transfer on death” provision, then that will trump the will and trust.  There is special language that can be attached to the beneficiary part of the account but it has to be written carefully.  You would need a knowledgeable attorney to help, and i’m not sure that even then it’s reliable.

    Maybe you could mention where you live, and perhaps someone here can recommend someone in your area.

    Good luck.

    #146596 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 886
    Joined: 11/21/2017

    Thanks for your thoughts.   I understand your point.   My concern is that we have a trust created by an estate planning attorney and in retrospect (it is several years old) I’m not sure he knew what he was doing.   He didn’t go over any pros or cons with us.   I explained what we wanted and he said he would do it.   That was the last time we saw the attorney and we only worked with his Paralegal after that . . . and she wasn’t so sharp.  So I need better, more direct questions to ask when we have it reviewed so I’ll know if it really is set up to accomplish our goals.   Obviously we won’t be going back to the same one as before.   Any other ideas in addtion to the “see through” trust are appreciated.    I’m trying to educate myself a bit before going in again.

    Click to expand…

    This is time consuming but I ended up actually having to read my will and the trusts and then reading up on trusts.

    The first time I got my will done, I didn’t actually read it properly. I ended up having to get it revised.

    My wife’s will she got done by a local lawyer and she had to get it completely redone.

    We probably spent 3k on redoing it for her and revising mine. But I don’t think it was wasted as the previous wills would have been very useful if we had died between when we did them and when we revised them 3 years later. At the time we did the first time, we didn’t have time to think it through. We did this year.

    I got them to email me the will and other documents after the first visit. I read over it and asked for corrections where needed and there were a few emails backwards and forwards before we met again to sign it.

    If you can get someone who can revise it later for a lower fee (perhaps $300 if not a major revision) that is useful as you may want to revise aspects later.

    There are probably some books on it but I ended up just researching the internet and reading every facet of my will and trusts.

    I’ve probably spent 20 hours on the will and tax aspects of estate planning and over 100 hours on researching trust structures and potential tax issues to do with them over the last 3 years.

    Once you get into it, it’s quite interesting, particularly trusts.

    Other suggestions: have plenty of potential guardians for the children: A, if not then B, if not available then C, then D, then E, then F.

    If the executor of your estate is not a company/is an individual or set of individuals, then make sure there are a few options: e.g A and B, A or B if one is unavailable, if neither A or B are available I nominate C, If A/B/C not available I nominate D.

    Actually, there are many aspects such as potential conflicts and where to store the will that Alex is very knowlegable about and he discussed in a previous thread which I can’t seem to find.

    There was one on trusts recently:

    The benefits of trusts

     

    #146657 Reply
    Liked by AlexxT
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7796
    Joined: 01/09/2016

    I recommend you get your CPA and/or financial planner involved. Having a trust as beneficiary of a retirement account carries a whole boatload of problems. Not saying that it is never appropriate, but you need to be able to discuss the pro’s and con’s with an experienced professional who can lay out the results and identify the minefields to help you decide on the right course of action.

    You’re correct that many garden variety attorneys who practice estate planning along with a variety of other areas of law will not have this specific knowledge, especially if they haven’t had years of experience. Same for CPAs and FP’s. As with choosing any professional, it can be a crap shoot if you do not know the right questions to ask at the point of making your decision. Unfortunately, getting references from colleagues is often not much help as they really don’t know if they’ve gotten good advice or not.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #146660 Reply
    Liked by AlexxT
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 886
    Joined: 11/21/2017

    I recommend you get your CPA and/or financial planner involved. Having a trust as beneficiary of a retirement account carries a whole boatload of problems. Not saying that it is never appropriate, but you need to be able to discuss the pro’s and con’s with an experienced professional who can lay out the results and identify the minefields to help you decide on the right course of action.

    You’re correct that many garden variety attorneys who practice estate planning along with a variety of other areas of law will not have this specific knowledge, especially if they haven’t had years of experience. Same for CPAs and FP’s. As with choosing any professional, it can be a crap shoot if you do not know the right questions to ask at the point of making your decision. Unfortunately, getting references from colleagues is often not much help as they really don’t know if they’ve gotten good advice or not.

    Click to expand…

    Agree with Johanna about discussing it with your accountant also.

    It’s very hard to find an estate lawyer who has good knowledge about tax issues. None of them will know your tax issues.

    And some accountants know the tax issues but not the trust issues.

    Finding a lawyer who specialises in estate, trust and tax law is expensive if your beneficiaries end up needing this. A stuff up can cause major headaches or cost for them.

    The problem with trusts is that they are supposed to operate for 20 years or longer in the case of minors. I don’t think people realize the practical problems of this. Inheritance options of retirement accounts is an area I’m trying to understand also and is probably more complex than it seems.

    #146667 Reply
    Liked by AlexxT
    Apprentice M.D. Apprentice M.D. 
    Participant
    Status: Student
    Posts: 10
    Joined: 08/26/2018

    I think in scenarios like this it is best to consult a professional. Not only will they be able to answer your questions, but they also may have an entirely new, better approach. Not sure if White Coat Investor has lawyers under the recommended tab, but it is worth checking out. If he doesn’t, I would shoot him an email and ask. I wouldn’t feel bad about paying for advice on something like this because this is the kind of stuff you want to get right on the first time.

    #146670 Reply
    Liked by Jason Veirs
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7796
    Joined: 01/09/2016

    I think in scenarios like this it is best to consult a professional. Not only will they be able to answer your questions, but they also may have an entirely new, better approach. Not sure if White Coat Investor has lawyers under the recommended tab, but it is worth checking out. If he doesn’t, I would shoot him an email and ask. I wouldn’t feel bad about paying for advice on something like this because this is the kind of stuff you want to get right on the first time.

    Click to expand…

    The difficulty with having a Recommended Attorneys section is that, for many areas of the law (such as E&T planning, not so much for contract review), the choice of attorney is state-specific. It would be very difficult for WCI to vet attorneys in every state – you would almost have to be an attorney or have experience using that attorney yourself.

    For instance, when I need to find an attorney for a client who is ready to put estate planning documents together, I can put a request out on the FPA (Financial Planning Association) and NAPFA (fee-only CFP) forum. I always get recommendations from other CFPs in the applicable cities/states where our clients are located and who have used these attorneys (not just me, we all do this). It is a tremendous resource because other CFPs know how to determine if their clients are getting good advice and at a fair rate. I keep a spreadsheet by state and for large cities with names and contact info of attorney referrals from the CFPs on the forum and it has been very helpful for clients.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #146686 Reply
    Avatar AlexxT 
    Participant
    Status: Physician
    Posts: 897
    Joined: 01/13/2016
    I recommend you get your CPA and/or financial planner involved.

    Click to expand…

    Sigh…   This is good advice in general, I suppose, but in my case the first attorney I went to had been recommended by my CPA, so I’m afraid it’s not going to always work.

    My experience was similar to that of @don‘t_know_mind above.  I believe ( but can’t be sure ) that the second attorney got things right.  The best thing he did for me was to lead me to the realization that I shouldn’t use my family members as successor trustees.  My siblings are fairly good with their money and have good jobs, but I don’t trust them to be on top of things and they might fall into the hands of bad “advisors”  not to mention the moral hazzards, so I have a bank with an impressive trust department lined up in the event that both parents die when the children are still young. They will charge around 1% AUM which would kill me again if I were alive to see it, but I think it’s better than the alternative. ( They use Fidelity Index funds exclusively, so I’ll only be charged the single AUM, and not an additional 1.5% for ER.

    I read a few books along the way.  I would recommend that everyone about to get a will and trust drawn up do some research and read a few books so that you can understand the issues and your options.  Just like with financial planners, you need to do some homework first to be able to assess the quality of the advice you’re being given.

    #146713 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7796
    Joined: 01/09/2016
    Sigh…   This is good advice in general, I suppose, but in my case the first attorney I went to had been recommended by my CPA, so I’m afraid it’s not going to always work.

    Click to expand…

    I hope that is your former CPA.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #146715 Reply
    Liked by AlexxT
    Avatar AlexxT 
    Participant
    Status: Physician
    Posts: 897
    Joined: 01/13/2016
    I hope that is your former CPA.

    Click to expand…

    Should have been, but isn’t.  I was too lazy.  But he will be the former as of this year.  I’ll be doing my taxes myself this year, something I should have been doing years ago.  At this point, I think I know more about taxes than he does, at least in the areas that apply to my situation.

    #146723 Reply

Reply To: Revocable Living Trust as Beneficiary

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear