Creating a trust: List bank accounts as beneficiaries or retitle the accounts

[WorkingToUnwind]

We are working with a lawyer to create a revocable trust to ensure our assets flow smoothly to our kids in the event of our early demise or incapacitation.

The lawyer created the trust and has redone the deed to our home so it is in the trust. She gave us a long word document with instructions on how to move our other assets into the trust.

I started with our bank accounts, and immediately got confused bc she said we have two choices. Retitle the bank accounts to the trust (what I expected) or just name the trust as a beneficiary. The latter would be easier, but I don't know if there are any drawbacks. I'm hesitant to reach out to the lawyer bc she'll probably bill me for her time and I'm cheap, haha. I can definitely do that if the answer remains clear as mud. I've done some googling but am not finding a definitive answer. This website leans toward retitling the accounts in the name of the trust, but it's just an article from one large firm. We're in NH, not sure if that affects things much.

https://www.bridgelawllp.com/should-i-name-my-trust-as-the-owner-or-a-beneficiary/

[MaybeBabyMustache]

I don't have a good answer to this, but a call-out that I was recently told that we need to change our homeowner's insurance to reflect our trust, vs my + DH's names. That was lost on me in the trust process, and not something our attorney mentioned. I'm planning to call this week to get it updated. Apparently, your coverage may be at risk otherwise. (Statement needs to be verified, but that's what I gathered from a call out from a neighbor & a small bit of research on my side.)

[GilesMM]

If you name your trust as a beneficiary, then it goes to the trust only if you die. If you name the account in the trust, the Trustee can control the account.  Depending on how it is set up, the Trustee could be someone other than you/spouse if you are both incapacitated. The trustee could use your bank account to pay the nursing home, for example.


Why aren't you asking your lawyer this?  It can be somewhat state dependent since they all treat trusts, estates, and tax situations somewhat differently.

[Catbert]

For things that are TOD or beneficiary designation to a person, they can go directly to the named person with only a death certificate.  Good, right?  The problem is if all sources of cash are set up that way,  your estate can't bury you, pay your outstand bills, pay your taxes, etc.  No fun to be the executor who has to go around and try to collect money back from inheritors for those things.

Personally, since my spouse is still alive most things are in the trust with only IRAs having direct beneficiaries.  Once he dies, I'll likely re-jigger that.

Edited to add:  My understanding is that IRA/401k/TSP/etc should not have your trust as a beneficiary bc that means the $$ will be paid out and taxed all at once rather than stretched out.  I may not understand the nuances about this issue.

[WorkingToUnwind]

Spoke to the lawyer and she recommended retitling the accounts where possible rather than listing the trust as a beneficiary. For our umbrella insurance, the trust will be an additional insured.

On a separate note, she had a gift card raffle that we won for $100 to a local restaurant. And I don't think she's charging me for my questions. So I am happy.

[JupiterGreen]

Spoke to the lawyer and she recommended retitling the accounts where possible rather than listing the trust as a beneficiary. For our umbrella insurance, the trust will be an additional insured.

On a separate note, she had a gift card raffle that we won for $100 to a local restaurant. And I don't think she's charging me for my questions. So I am happy.

Thank you for updating us, that's helpful to know. Congrats on winning the drawing!

[WorkingToUnwind]

Thanks!

[SusieStache]

Edited to add:  My understanding is that IRA/401k/TSP/etc should not have your trust as a beneficiary bc that means the $$ will be paid out and taxed all at once rather than stretched out.  I may not understand the nuances about this issue.

I absolutely second this statement.  My parents made their trust beneficiary of their IRA annuities, leading to a effective tax rate of nearly 40% on my dad's IRA annuity following his death.  Made me sick to think how hard he worked to save that money, only to have a large portion depleted in an instant.

If he'd left my mom as beneficiary, income taxes on the IRA distribution would have been minimal or nonexistent.  She had Alzheimer's and was able to write off 10s of thousands in medical expenses each year.

In my opinion, it is critical to work with a tax professional with knowledge of trust and estate taxation, as well as with an estate attorney.  I'm not sure that estate attorneys are up-to-date on relevant tax law.

[MaybeBabyMustache]

I don't have a good answer to this, but a call-out that I was recently told that we need to change our homeowner's insurance to reflect our trust, vs my + DH's names. That was lost on me in the trust process, and not something our attorney mentioned. I'm planning to call this week to get it updated. Apparently, your coverage may be at risk otherwise. (Statement needs to be verified, but that's what I gathered from a call out from a neighbor & a small bit of research on my side.)

I finally called my own homeowners insurance company & updated my policy. Took about 10 minutes to add the trust (make sure you know the exact name/wording of your trust) & was at no cost.

[Sandi_k]

Thanks for this! I sent a note to our agent, asking whether we need to update our policy to the name of our trust.