Beneficiaries Vs A Trust

Maecl | Aug 19, 2021 | 149 posts since 2010

My husband passed in Feb. We have a revocable trust. I don't have all my accounts in the trust & some banks don't have the option. Can I open a new account in our trust?

Also, if I add beneficiaries to an account not in a trust does it have to go through probate when I pass?

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Answers

111 | Aug 19, 2021 | 672 posts since 2019

I'm sorry for your loss.

You've asked two questions, and it seems to me that the 2nd one, which does not deal with your revocable trust, may be the simpler one to answer. So here goes on that one -

A) For a financial account that is not in a trust but is in your name only - if you add what are called “Payable on Death” (often abbreviated as POD) beneficiaries to that account, that can be done without making any changes to your will or your trust (because of course, this account is not in the trust, and it will pass outside of your will). POD designations “trump” trusts and wills. Such accounts will not go through probate after you pass. Individuals listed as a PODs are considered “designated beneficiaries”, which with certain kinds of accounts (e.g., IRAs and 401Ks), may give them certain advantages over those who are simply “beneficiaries”.

A few caveats:

1) Adding one or more PODs can be problematic if the relevant bank or CU fails to properly record these PODs in their own records. It's always best to request copies of their records following any added PODs that you request - perhaps even via certified mail. (And yes, these problems have actually happened in real life, particularly in scenarios following bank / CU failures during the “great recession”).

2) Both FDIC and NCUA rules state that if a POD were to die, there is absolutely no “grace period” for continuing deposit insurance following that death (this is unlike the rule for joint owners). This also means that if PODs predecease you, and then you pass, possibly these assets may not pass to the designated beneficiaries as you had planned.

3) Ideally you should leave a letter or document for your heirs indicating which assets are in your trust, and which are individually owned by you.

B) On your second question, regarding “I don't have all my accounts in the trust & some banks don't have the option. Can I open a new account in our trust?”. It's quite true that some banks and CUs refuse to record a trust as owner, joint owner or even as POD. In my opinion this is a much harder question because most laws regarding trusts are state laws, and I have no idea what state you're in. I'm mildly familiar (in a non-lawyer sense) with state trust law in Illinois and Indiana, and beyond that I simply don't know. And, in my opinion it would be unwise to speculate. For this, I would suggest a lawyer familiar with your state's laws - ideally the same one who created your trust.

CuriousDave | Aug 20, 2021 | 233 posts since 2018

So sorry for your loss. If you had set up the trust with an estate planning attorney, you will want to consult that attorney about your best course of action as everything will depend on the terms of the the trust document. For instance, the document may require the sub-division of the trust into two or more parts, and the part pertaining to your spouse becomes irrevocable upon his death. Or, the entire trust may become irrevocable. Whether you can now title any of your personal assets into the trust will have to be discussed. Also, whether you can change the beneficiaries of the trust after one spouse has passed.
If you designate beneficiaries to your personal assets other than via a trust, such as POD designations to bank or other accounts, those will bypass probate, but upon death your beneficiaries will need to act fast to take personal title to FI accounts because of the termination of FDIC or NCUA insurance upon death, as commenter 111 has indicated.
Bear in mind too that even if you are legally able to transfer title to any of your personal assets to the trust, that may require reporting on a gift tax return (although for most people no actual gift tax will be due). Estate and gift planning in the U.S. is a minefield and should not be attempted without competent legal guidance.

Choice | Aug 20, 2021 | 937 posts since 2020

Dave…Transfers to an irrevocable trust required to possibly trigger gift tax return?

CuriousDave | Oct 2, 2021 | 233 posts since 2018

A gift tax return will need to be filed only if assets are actually gifted to an irrevocable trust or to a trust that was set up as an Intentionally Defective Grantor Trust (IDGT). The attorney who set up the trust will know whether that was or will be done. That would include, for instance, selling assets to the trust for less than "adequate consideration" - their fair market values, in which case the difference is the value of the gift. Gift tax returns will need to be filed by the donor (the party making the gift(s)) for each calendar year in which gifts are made. There is no requirement to file for any year in which gifts made by the donor aggregate to less than the annual exclusion amount (currently $15,000), but if the gifts are for something other than cash, such as an ownership interest in real estate that has been appreciating in value, many estate planning specialists recommend filing anyway to start the statute of limitations clock. That limits the time the IRS legally has to audit the return and, possibly, challenge the valuations of gifts reported on the returns. If no gift tax return is filed, even if not required because annual gifts don't exceed the $15,000, the IRS has an unlimited time to challenge - and potentially to increase - the valuation of the gift(s) to more than $15,000. That will not affect the income tax basis of the gifted asset(s) in the hands of the recipient trust as that basis will be the same basis that the donor had at the time of gifting. So, if the trust later sells such an asset, the trust's taxable gain or loss would be the difference between the sales price and the donor's basis as of the gift date.

Choice | Oct 2, 2021 | 937 posts since 2020

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Choice | Aug 19, 2021 | 937 posts since 2020

Sorry about your loss. When in doubt reread your trust document as to what can be done and talk to the attorney who drafted it. Some people terminate the trust if still revocable as to survivor and distribute as required. Subsequently a new trust could be set up and funded. But if accounts can be set up by contract, most can provide beneficiaries, if not you may want revisit having accounts at that FI.

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