Vanguard Beneficiary/Trust Question

[Peter Parker]

Chalk this one up to a stupid question, but here goes:

I've named my spouse and kids as beneficiaries of my Vanguard account (through Vanguard)....this money will pass to my beneficiaries listed with Vanguard regardless of whether the Vanguard account is listed in my trust, CORRECT?

Thanks for the input!

[Not2Late]

What do you mean 'listed in my trust'? Who is the named owner, you or the trust?

[Peter Parker]

What do you mean 'listed in my trust'? Who is the named owner, you or the trust?

Thanks for the reply.  Hope this explains it further....

I'm in the process of creating a living trust.  In the trust, I have placed my checking and savings account.    I have NOT placed my brokerage account with Vanguard into the trust because in my Vanguard account,  I have named my wife beneficiary for 100% and, if she does not survive me, it goes in equal shares to my three children. 

...So my understanding is that I don't need to place my Vanguard account into the trust because the money will pass to my wife (or my kids) outside of the trust upon my death.

Or am I wrong?

[Not2Late]

I am not an expert on this topic, I am responding to try to help flesh out the question and because I am curious about your question. Hopefully someone more knowledgeable will chime in here.

I believe you are correct about accounts outside the trust passing according to the beneficiary designation.

I have only a limited experience as a successor trustee on my MIL's revocable living trust on her passing. I found that one checking account was titled with only her name on it, let's say Jane Doe, 123 Main St, Anytown. I could not access this account without probate paperwork.  She had an IRA in her name that passed to the beneficiaries named on the IRA. Her other checking account and her brokerage account were titled with the name Jane Doe Revocable Trust, 123 Main St, Anytown. I provided a death certificate and a copy of the trust paperwork and was able to access the accounts opened by the trust.

So when you say placed into the trust, what is the mechanism you are using to do that? What instructions did the creator of the trust documents provide to transfer your assets into the trust?

Again, trying to help, and curious to expand my understanding.

[secondcor521]

What do you mean 'listed in my trust'? Who is the named owner, you or the trust?

Thanks for the reply.  Hope this explains it further....

I'm in the process of creating a living trust.  In the trust, I have placed my checking and savings account.    I have NOT placed my brokerage account with Vanguard into the trust because in my Vanguard account,  I have named my wife beneficiary for 100% and, if she does not survive me, it goes in equal shares to my three children. 

...So my understanding is that I don't need to place my Vanguard account into the trust because the money will pass to my wife (or my kids) outside of the trust upon my death.

Or am I wrong?

You are correct; the inheritance process should work as you describe.  The Vanguard assets will not have to go through the probate process and your wife or kids should be able to transfer the money into their names pretty easily - they just have to provide a death certificate to Vanguard.  If the Vanguard assets are IRAs then there are some additional things to figure out (either rollovers or RMDs).

If you die then your wife dies and any of your children are minors, then they will still inherit but the probate court will assign a custodian for those inherited funds until the children reach the age of majority in your state.

If it were me, I would not put the Vanguard asset into a living trust because I think you would then have to fill out a trust tax return, which is extra paperwork, extra tax preparation fees, and almost certainly higher taxes if the Vanguard account is of any decent size.

[Peter Parker]

secondcor521 thanks for the reply...That is what I thought.  And after further reading, I think this is the way to go.  Again, I appreciate the input.

[Peter Parker]

So when you say placed into the trust, what is the mechanism you are using to do that? What instructions did the creator of the trust documents provide to transfer your assets into the trust?

Again, trying to help, and curious to expand my understanding.

My understanding is that each item you want to hold in a trust must be transferred to myself (in this case) as trustee.  Items that have a title (like real estate) means that I would have to get a new title to show the property is owned by me in my capacity as trustee.

But some assets (like my Vanguard account) do not need to be placed in a trust as the asset will pass on death to those heirs that I name as beneficiaries....There is no need for probate.  Or at least that's the way I understand it....

After calling my two banks that I have accounts with, I found out that:

     1.  One bank allowed me to name beneficiaries and thus I do  NOT need to place that item in a trust.
     2.  Bank two, does NOT allow me to name beneficiaries--thus if I want that item to pass to my heirs, I must place that item in my trust (with me as a trustee).

Hopefully that better explains it.  And if anyone has anything to add, I would appreciate it.