Advanced Underwriting Consultants

Question of the Day – May 17

Ask the Experts!

Here’s the question of the day.

Question:  My client wants to re-title his IRA into the name of his living trust.  Is that a good idea?

Answer:  No, no, no!  It’s a terrible idea.

IRAs must be personally owned to qualify as IRAs.  Any attempt to transfer an IRA to someone else or to a trust will be treated as a complete disposition of the IRA—causing the entire account to be immediately taxable in most cases.  Furthermore, if the original IRA owner is younger than 59 ½, the entire account would also be subject to an extra 10% penalty tax.

This question usually arises when a client has done estate planning documents with an attorney, and has had a living trust drafted.  The attorney advises the client that, in order for the living trust to effectively help the client avoid probate, personally owned assets must be transferred into the trust.

While transferring assets that would otherwise be subject to probate into the trust makes sense, transferring qualified assets does not.  The transfer would be taxable as described above.  Furthermore, it is not necessary to transfer qualified assets into a living trust to avoid probate.  Probate can be avoided by naming a beneficiary for the account.  In fact, if desired, the living trust can be named the beneficiary of the account.  If that’s done, the account will pass smoothly to the living trust at the account owner’s death—without the need for probate.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day. 

Question of the Day – August 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  Can you explain how a living trust avoids the publicity associated with probate?

Answer:  Probate is the process of a court supervising the transfer of assets from a deceased person to the decedent’s heirs.  Because it is a court process, the records are generally public and available to anyone who asks.  Records may include a copy of the decedent’s will, a list of heirs and an inventory of assets that the decedent owned at the time of death.

Probate is necessary when the decedent has substantial valuable probate assets in his or her own name at the time of death.  The process must be followed whether the decedent had a will or not.

Probate can be avoided for those assets that were owned jointly with right of survivorship, for which a valid beneficiary designation existed or for which a valid successor owner was named as required by law.

A living trust is a document, similar to a will, that names successor owners and beneficiaries in the event of the grantor’s death.  If the grantor’s assets are transferred to the trust while the grantor is living, the assets do not need to go through probate at the grantor’s death.  That’s because the trust itself owns the assets—not the decedent.  The trust document dictates the proper manner to be followed for assets to be transferred to the trust beneficiaries.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.