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Insurance and IRA's in the Trust?

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maitai11

Junior Member
California

Any problem with putting the Trust as a beneficiary on IRA's or Life Insurance? Just wondering if there's a problem with doing so. A friend of mine has his insurance and IRA OUT OF THE TRUST, he says because the beneficiary (his wife) is named as such - but wouldn't that be subject to probate??? He was saying that when naming a beneficiary, there is no need to place those IRA's/Ins into a trust. My feeling is that they SHOULD go into the trust.

Any help would be greatly appreciated!

Maitai
 


curb1

Senior Member
There is generally not a good reason to place these into the trust. I only say that because there could possibly be a very unique situation, but I haven't heard of one.

Why wouldn't you want them to pass directly to the beneficiary? No, they wouldn't be subject to probate.
 

TrustUser

Senior Member
having the trust as beneficiary is actually the correct way to handle iras and insurance policies.

after re-reading your post, it seems a bit confusing.

when you say "put into the trust" - this typically signifies titling the asset into the trust.

if by this, you mean, having the trust be the beneficiary, then you are correct.

anytime an individual is named as a beneficiary, one runs into the possibility of that beneficiary dying. trusts do not die.
 

anteater

Senior Member
having the trust as beneficiary is actually the correct way to handle iras and insurance policies.
Aw, man... You've been so reasonable lately.

I'm not up to a long tussle. But, a blanket statement like that just doesn't cut it. There are reasons that one might want to make a trust the beneficiary. But, that is not a decision that a layperson should make lightly.

That kind of decision should only be made after considering the objectives of the OP and all of the ramifications. The only reason that the OP obliquely mentions is "subject to probate." That, all by itself, is not a factor. As curb1 mentions, those items do not need to go through probate.

anytime an individual is named as a beneficiary, one runs into the possibility of that beneficiary dying. trusts do not die.
That's why there are contingent beneficiaries.
 

FlyingRon

Senior Member
Generally if there is a single person the insurance is to take care of (spouse for example), it's better to have the money transfer directly to that person with the trust as a secondary beneficiary if that person has predeceased.

Generally, the lawyer who create the trust can provide assistance on what assets and beneficiary designations make sense.
 

TrustUser

Senior Member
hi anteater,

it is okay if we disagree. we dont have to think of it as a long tussle.

but let me rephrase, in case i misled you.

i am talking, in a general sense. and USUALLY, it is best to place your trust as the beneficiary of said policies. this is what i meant by it being the "correct" way of doing things.

the OP seemed to be wondering whether this was typical, etc.

so the first thought should be to name the trust as the beneficiary. then, if there is some other reason not to, then okay. but i daresay there would not me many instances in which you would not want to do so.
 

TrustUser

Senior Member
hi tranquility,

you havent convinced me. i will repeat the following :

so the first thought should be to name the trust as the beneficiary. then, if there is some other reason not to, then okay. but i daresay there would not me many instances in which you would not want to do so.

i stand by it. i think for most people, in most instances, naming their living trust as the beneficiary of iras, pensions, and insurance policies is what gives them their best choice.

i recall a few years back that the law was changed so that doing this did not require a full distribution. this had been a big drawback. i am gonna say that was at least 5 years ago.
 

curb1

Senior Member
trustuser,

I can't accept your suggestion unless you give reasons for putting these instruments into the trust. There are not many things more efficient in estate planning as direct payment to beneficiaries from savings accounts, insurance, IRAs etc.

Our attorney who set up our trust, and many others which I am familiar, would totally disagree with suggestion except for special situations.
 

TrustUser

Senior Member
a living trust can describe it's beneficiaries at length.

most bank accounts, pension accounts, etc. have limited space for beneficiary and contingent beneficiary naming.

your trust is where you have specifically gone to lengths to name your beneficiaries and what percentages, etc. each should receive.

why would you not want to make the beneficiary of most any other account your living trust ?

if all other accounts name the trust as beneficiary, then you only need to make changes in one place, if changes are desired.

so again, i will go back to my original statement, which still stands. first thought is to name the trust as beneficiary. if there is a reason why you dont want to do this, then name another beneficiary.
 

TrustUser

Senior Member
i most certainly did list the effect. the old way made it a complete distribution at one time.

i will disregard your "because lots of other reasons". saying "lots of other reasons" over and over does not make you right, either. you see, you do not intimidate me in the least. i can get a heckuva lot feistier than you can, if you push me.

care to expound on Because you might not want to pay estate taxes on the insurance proceeds ?

care to expound on Because the spouse may want to make an election regarding the IRA?
 

anteater

Senior Member
i most certainly did list the effect. the old way made it a complete distribution at one time.
That is not the case.

care to expound on Because the spouse may want to make an election regarding the IRA?
The spouse has the option to roll the IRA into their own IRA.
 

TrustUser

Senior Member
hi anteater,

thank you for the very courteous reply.

i am pretty sure i am correct about the first statement. until there was a law passed, it was considered a full distribution (i hope i am using the correct terminology), instead of allowing it to be taxed over a period of time. that was a huge disadvantage. the reason i know this is that i went to a trust seminar where the lawyer was still saying this. i then called up farmers and merchants trust division, and found out that this was no longer true as of a year or two ago, at the time of the conversation. that conversation was over 5 years ago, so the law change was awhile back - while i was still at the infant stage of learning about trusts.

from my recall, i am of the impression that there is nothing that a beneficiary cant do from within a trust, that they could as an individual. i am certainly willing to say i am wrong, if you want to post a link. lets take a simple case. husband has an insurance policy. husband and wife have a revocable trust, with them as trustees and lifetime beneficiaries.

husband dies. i dont think there is anything that the wife cant do within the trust, that she could do if she was named as the individual beneficiary. a trust is a mighty powerful tool.

the comment about estate taxes i did not understand at all, which is why i wanted some clarification. in general there is not much that can be done to avoid estate taxes. there is such a thing as an insurance trust. but i dont think that has anything to do with what the op was asking. the question had to do with who to name as the beneficiary of one's insurance policy.

i dont want to fight with anyone here. but good debating is helpful, in that it helps arrive at a more correct conclusion.

in this case, we can take a look at what advantages there are, if there are any, to not naming a trust as the beneficiary.

as you know, i am a big fan of trusts. it is one centralized document that can be tailored very specifically to the desires of the trustor. that, in itself, is a huge reason why one's first thought should be to place everything in their trust. or in the case of pensions, iras, insurance - the beneficiary. you have one place that mentions how you want your assets managed, and by whom.

if you want to make beneficiary changes, you can do so in just the one document. although personally, as i have stated before, i dont like the idea of having amendments that change beneficiary names.

have a nice day.
 

anteater

Senior Member
TrustUser -- I have enough trouble keeping up with the current rules. Remembering exactly what the rules said in the past.. well, I don't have enough RAM to hold that information in memory. That said, the ability for a beneficiary to "stretch" an IRA has been around for at least a decade, longer I believe. As has the ability of a spousal benefciary to roll the IRA into their own name, I think. That can be a potentially valuable option if the surviving spouse is not yet subject to required disributions.

(If Tranquility has not forsaken this thread already, he can probably clean up any mess in what I have said above.)

The problem with most trust seminars is that they are a selling tool. While there may be some accuracy, which isn't a certainty, people need to be very careful about the scenario being described. It makes sense for the presenter to describe the absolute worst-case scenario, implying that it is typical, and then portray what is being sold as the solution.

As I think that I said before, there are reasons that the trust might be named as the IRA beneficiary. But those reasons have little to do with distributions and taxes. To my way of thinking, naming a trust as beneficiary adds complexity that does not need to be there unless there are specific reasons for doing so. And it also multiplies the possibilities for the trustee to shoot themselves in the foot.

Therefore, consider naming a trust as a beneficiary? Sure, if the situation fits, but make certain that you get advice from an objective professional first. The trust as the default or preferred beneficiary? Nope.
 

TrustUser

Senior Member
hi anteater,

i agree - not everything is worth holding in memory. once i make a decision on something, i dont always remember all the reasons i did so, at a future point.

so that always opens up the possibility that one's current opinion might change, if one of the previous reasons had changed.

one reason i like putting everything i can into trust is that i like the idea of keeping the trust around after the trustor dies.

with the proper protection clauses, the trustor's assets can be protected from the beneificiary's creditors.

so even if we do some dumbass thing with our own funds, we at least have some protection to fall back on - which is basically what parents want for their kids.
 

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