You know that only assets transferred into your Trust are governed by your Trust, but when you have a variety of bank accounts, retirement accounts, real property, business interests, etc., you may wonder what you should transfer into your Trust. (How you transfer them into your Trust is covered in a separate blog post titled "How to Transfer Assets Into Your Trust").
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WHAT GOES INTO MY TRUST? |
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ASSET |
HOW TRANSFERRED ON DEATH |
INTO YOUR TRUST? |
|
Individual Retirement Account (IRA) |
Beneficiary designation |
No |
|
401(k) |
Beneficiary designation |
No |
|
Pension |
Beneficiary designation |
No |
|
Life insurance |
Beneficiary designation |
No |
|
Real property |
By title |
Yes |
|
Savings account |
By title |
Yes |
|
Checking account |
By title |
Yes |
|
Investment account |
By title or by beneficiary designation |
Yes |
|
Vehicles |
By title |
Yes |
|
Tangible personal property |
By Will or Trust |
Yes |
|
Business interests |
Formation documents |
Yes |
To figure out what to transfer into your Trust, it helps to understand how assets are transferred after your death. There are essentially 4 ways to transfer assets after your death:
1. by Beneficiary designation;
2. by title;
3. by probate; or
4. by declaration.
1. BENEFICIARY DESIGNATION
If you have an account with a Beneficiary designation, after your death it will be transferred to that designated Beneficiary. You do not need a probate or a Trust to make this happen. This includes most life insurance, retirement accounts, annuities and some investment accounts. You can name your Trust as your Beneficiary, if you do not want the account to go directly to the Beneficiary and if you prefer to have your Trustee manage the account for your Beneficiary. It is appropriate to name your Trust as your Beneficiary if your Beneficiary is a minor child, a special needs Beneficiary or a troubled Beneficiary whom you do not want controlling the Trust assets. If your Beneficiary is a responsible, competent adult, it is appropriate to simply designate them as the Beneficiary to streamline the process after your death.
If you designate your estate as your Beneficiary, your loved ones will need to probate the asset unless the asset is worth less than $166,000. If you are trying to avoid the expense of probate, DO NOT DESIGNATE YOUR ESTATE AS YOUR BENEFICIARY.
2. BY TITLE
By “title” I mean who owns the asset and how they own it.
If there are 2 or more owners of a bank account who own it in just their names alone (ie: Mary Jones and David Smith) and one of the owners dies, the surviving owner(s) own(s) the entire bank account.
If there are 2 or more owners of a bank account with a qualifier (ie: Mary Jones and David Smith, joint tenants) the qualifier will control:
Joint tenants: when one joint tenant dies, the surviving joint tenant owns the asset;
Joint tenants with right of survivorship: same as joint tenants;
Tenants in common: when one tenant in common dies, their share goes according to their Will;
Community property: the deceased spouse can give away his/her share of community property; otherwise it goes to the surviving spouse;
Community property with right of survivorship: the surviving spouse gets the entire assets.
If the asset is a part of the Trust, meaning that the Trustee of your Trust owns the asset, the Trust asset will go to the Beneficiaries of your Trust according to the terms of your Trust. If your name is the only name on title, and if you own it as an individual and not as the Trustee of your Trust, on your death, the asset will go to your estate, meaning that it will go through probate. For example, if the title on the asset is “Mary Jones” and there is no Beneficiary on the account, most likely it will need to be probated, but if the title on the asset is “Mary Jones, Trustee of the Mary Jones Trust dated 12/24/94,” no probate will be needed and the asset will go to the beneficiaries listed in the Mary Jones Trust.
3. PROBATE
Your assets will be transferred on your death by probate if 1) the asset is titled in your name alone (ie: there is no joint owner who has a right to inherit the asset and you have not changed title to your Trustee), 2) there is no Beneficiary designation on the asset, 3) the designated Beneficiary is your estate, or 4) there is a problem with the title or the Beneficiary designation that makes it impossible to transfer the asset that way (ie: all of your designated Beneficiaries have died.)
4. BY DECLARATION
If your entire probate estate is worth $166,000 or less, you do not need a Will or a Trust because your Beneficiaries in your Will or your heirs at law can transfer the assets to themselves with a declaration.
So, if your asset has a Beneficiary designation, you do not need to transfer it to your Trust unless you do not want your Beneficiaries to control the asset. For instance, if they are minors or lack the capacity to responsibly manage the asset, you can designate the Trust as your Beneficiary.
If your asset has a joint owner who has a right to inherit the asset on your death, you do not need to transfer the asset into your Trust.
If you prefer that your loved ones go through the probate process before inheriting from you, you do not need to transfer your assets into your Trust.
If your entire estate is worth less than $166,000 on the date of your death, you do not need to transfer the assets into your Trust.
Everything else should be transferred into your Trust.
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