A common question people ask when they come in to do an Estate Plan is whether their retirement benefits i.e. the 401k , IRA or pension account should be in a Revocable Living Trust (“RLT”). A RLT is a legal document created during your lifetime that allows you to leave your real and personal property to beneficiaries of your choice. A RLT is very much like a Will with one BIG exception: there is no Probate with a RLT.

The most common assets put into a RLT are real and personal property. By putting real estate and personal property such as bank accounts into a RLT there is no probate and minimal time delay incurred in transferring assets to beneficiaries with a RLT because no court approval is required.

The question is more complicated when it comes to having an estate plan that calls for the RLTs to be a beneficiary of retirement accounts. The first question we ask is whether there is a strong estate planning reason to name a trust as a beneficiary, or is there a way to achieve the same planning goals without incurring the risks and complications of naming a trust?

Our first choice in drafting most estate plans will be for you to leave your retirement benefits i.e. your pension, 401k and IRA outright to your intended beneficiary. In most cases, this will be your spouse. However, what should you do if your spouse is not alive and you want to leave your benefits to minor children or to several beneficiaries?

If you want to leave retirement benefits to minor children or you want to leave to them to several people, these are compelling reasons why a RLT or a Retirement Trust should be the beneficiary or a contingent beneficiary. If you have retirement benefits and are considering making a RLT a beneficiary, you will need to check with your retirement benefit administrator regarding naming a RLT as your beneficiary. Different companies have different rules. Who you put on the designation is the person who gets the money. They have no obligation to share with anyone else.

If you are considering leaving retirement benefits in a RLT, the beneficiary of the trust must be a person or group of people. You can’t use a trust to leave retirement benefits to a charity, your church or another trust or any other entity. That is not to say that other assets of your trust cannot go to a charity or church or another entity, just not the retirement benefits.

Today retirement benefits are very valuable. Take the time to understand what your current estate plan for the benefits is and what other options are available to you and your family. The cost of an estate plan will depend on the complexity of the issues involved as well assets that need to be placed in the trust. Most attorneys allow people to make payments over time for the work. If you have separate property from a prior marriage, business interests that need to be included or a taxable estate, it is even more important that you properly plan for distribution of your assets in accordance with your wishes without the prying eyes of the public and court system.

I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice. Information contained is not a substitute for a personal consultation with an attorney. LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680 1600 S. Main Street, Suite 100, Walnut Creek, CA 94513 © 2015 Joan Grimes

Consider a Revocable Living Trust,

A Revocable Living Trust (“RLT”) is a legal document created during your lifetime that allows you to leave your real and personal property to beneficiaries of your choice. A RLT is very much like a Will with one BIG exception: there is no Probate with a RLT. This means that your RLT and the property in it will not be made public or subject to court supervision.

Given the high cost of probate proceedings in California which can easily be 4-6% of the fair market value of the assets irrespective of the debt against the assets, this is reason enough especially if you own any real property. In most cases, the cost of transfer of title with a RLT is few hundred dollars. Also, there is a minimal time delay incurred in transferring assets to beneficiaries with a RLT because no court approval is required. In a probate, it can take years to transfer title.

RLTs are called “living” because they are created while you are alive and you legally transfer your property to the trust when you create it. RLTs are “revocable” because you may at any time prior to your death, revoke or change them. In fact, as there are changes in your life including getting married, divorced, a beneficiary dies or your financial or property situation changes, you should have the RLT reviewed by an attorney in order to ensure the changes are properly reflected in the Trust.

While you are alive, you still own all of your property that has been transferred to the RLT. You can still sell the property in the trust, borrow against it, spend it or give it away. Assets in a RLT are treated much the same as direct ownership of property for income tax purposes. There are no additional taxes, tax returns or any necessity for separate tax payer identification.

Sometimes people say they are not concerned about probate fees because they are not going to be here. However, a RLT can be very important to you when you are alive because if you become incompetent due to an accident or illness, a conservatorship will be necessary if you do not have a RLT. However, if you a RLT, there can be an easy transfer of management of your property and affairs without the necessity of a court appointed conservator if there is a period of incapacity.

Sometimes people are worried that RLT will cost a lot of money and take a lot of time to set up and maintain. For most people, an Estate Plan including a RLT and all of the ancillary documents including a Power of Attorney and Healthcare Directive should not be a costly process. However, depending on your specific circumstances, it may be more costly. Most attorneys allow people to make payments over time for the work. If you have separate property from a prior marriage or business interests that need to be included, it may be more, but then it is even more important that you properly plan for distribution of your assets in accordance with your wishes without the prying eyes of the public and court system.

If you have real property in the state of California or elsewhere, you should carefully consider how you are currently holding title to the property and whether a RLT may be a better idea for you. I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

Law Office of Joan Grimes

Law Office of Joan Grimes

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