Category Archives: Trusts

Transfer on Death

Who inherits when you die?

Most married people own their home, their bank account or their investments jointly as a couple. The most common designation on an investment account is “joint tenants with right of survivorship” (abbreviated as JT/WROS). What this means is that each has full power over the account. Either can deposit, withdraw or make changes in the account. And when one of them dies, the other automatically becomes the full owner of the account.

There are some accounts that cannot be owned as a couple. An example is an IRA, or a retirement account like a 401k. When the owner of this kind of accounts dies, the assets go to the persons named as “beneficiaries.” Therefore it’s important to review beneficiary designations on retirement accounts when life changes take place like death or divorce.

But what about accounts that are in the name of just one person without a named beneficiary? This is very often the case of people who were never married, are divorced, or widowed. Under those circumstances, when the owner dies the assets in these accounts are distributed under the terms of a will. This requires a process known as “probate.”

Probate is the legal process whereby a will is “proved” in a court and accepted as a valid public document that is the true last testament of the deceased.

There are two ways of avoiding probate. The first is place your assets in a trust and designate who will receive the assets on death. This requires an estate planning attorney.

The second way is to add a Transfer on Death (TOD) designation to the account. A TOD designation names the person (or people) who will inherit the account. Since the assets go to the named beneficiaries directly, probate is not required. The other advantage is that it does not require a lawyer so there is no cost.

Review your investment accounts, your IRA and retirement accounts and your estate planning documents on a regular basis. It can prevent a lot of problems later.

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Five reasons for Trusts

In the past, estate planners usually cited two reasons for setting up trusts:

  • Minimize probate
  • Avoid estate taxes

There are several ways of avoiding probate without a trust and the federal estate tax does not apply to estates under $5,450,000 in 2016.  This removes a big reason for setting up a trust.

Here are five reasons for setting up a trust that are usually not considered.

  1. Divorce.  Setting up and funding an appropriate trust can protect a child or heir from losing family assets in a divorce.
  2. Changing a legal location.  If a trust is revocable the actions of a local court do not inhibit the heirs from moving.
  3. Serving disabled loved ones.  A special needs trust can be used to protect assets for an ill child or spouse.
  4. Minimizing identity theft.  If a trust is set up using its own tax identification number, the trust may be protected if your social security number is compromised.
  5. Protecting the elderly.  As people age, they can suffer cognitive impairment.  If the trust is drafted properly, successor trustees or co-trustees can be named to manage the older person’s financial affairs.
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