William Daniel Powell is a San Diego attorney that focuses his practice in the Estate Planning area helping families and individuals with Estate Planning needs. This is his regular blog where he writes on various subjects relating to estate planning and estate law.
I don’t recommend putting your automobile into a Revocable Living Trust mainly because if you should get into an accident, and the other person sees that your car is owned by a Trust, they may think you are wealthy and look to sue in a situation where they otherwise would not.
Now, if you own a classic car, hot rod, or other collectable car that you plan on keeping for a long period, then it makes more sense to put the auto into the Trust. Usually these types of cars are not “daily drivers” and pose less of a risk of lawsuit like discussed above.
IRA and 401(k) accounts present a specific problem if we try to put them into a Living Trust by changing the title of the asset. The problem is that doing so creates a “taxable event” and too much of the value of the IRA will be lost to taxes. Not good. So what do we do with IRA’s? The question depends on your situation. If you are married, likely the best solution is to name the spouse as the beneficiary (and not a Trust). If you are not married, then a beneficiary designation can still be utilized to pass the asset on to someone else such as a child. Another method is to name a specially designed Trust called a Standalone Retirement Trust (or SRT) as the beneficiary. Using a Standalone Retirement Trust provides some benefits to the beneficiary that an outright gift cannot. Naming an individual as the beneficiary (and not a Trust) is considered an “outright gift” because once they are entitled to the funds, there is no control over how the funds are to be used (provided they are over 18 years of age). They get the lump sum and off they go. You can see how this can be a bad situation for the young, those bad with money, those subject to predators, or even those bad marriages! In a recent case called Clark v. Rameker, the Supreme Court held that an inherited IRA cannot be shielded from creditors or bankruptcy. This is why a Standalone Retirement Trust can be so beneficial. There are other tax advantages to using a SRT that I won’t go into here, but in a nutshell, the distribution may be able to be streached out and keep the beneficiary in a lower tax bracket, and provide opportunity for the IRA to continue to grow.
There are other items that should not go into your Living Trust that I won’t cover here. Please check my future blogs for possible discussion of these items (or of course consult an attorney!)
Please feel free to give me a call and we can review your Estate Planning goals, or start your Estate Plan today!
See lots of estate planning information on my website at: www.myestate-plan.com
Thanks for reading.
William Daniel Powell (Dan)
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.
Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.