Properly funding the trust is crucial to ensure that the trust terms apply to one’s assets. However, some assets may be intentionally left out of trust. The reasons vary and can be as simple as convenience or more complicated like the need to void undesirable tax consequences.
Typically, it is not necessary to transfer the ownership of a retirement plan to a trust. Sometimes, it is even impossible. For example, an IRA account cannot be owned by the trust. Further, transferring ownership of a retirement account to the trust can have negative tax consequences. Therefore, it is always imperative to check with a tax professional regarding the potential consequences of any such transfer.
Oftentimes, the simplest solution is to designate desired beneficiaries of the retirement plan, which would allow them to receive the proceeds directly and quickly. However, direct distribution to beneficiaries is not always wanted due to the age or circumstances of the beneficiaries and that is when a trust can be helpful. The trust can sometimes be named as the beneficiary of the retirement plan and, consequently, upon the grantor’s death, the retirement funds would be received by the trust to be distributed as designed in the trust, allowing the grantor to control the manner and timing of the distribution.
The situation is similar with respect to life insurance proceeds. Rather than changing the ownership of the insurance policy to the trust, the trust can be named as the beneficiary of the life insurance policy, allowing the trust terms to control the distribution of the life insurance proceeds in accordance with the grantor’s wishes.
A common solution is to name one’s spouse as the primary beneficiary of the retirement plan and/or life insurance policy and then name the trust as the alternate beneficiary. While it is unlikely that one wishes to restrict the use of the retirement plan funds or life insurance proceeds by one’s spouse, it is not uncommon to wish to design the timing, amount, and method of distribution to one’s other beneficiaries. Each retirement plan administrator and life insurance carrier have their own forms that should be used to designate one’s beneficiaries. The forms can be requested directly from the plan administrator or the insurance carrier.
Motor vehicles, including cars, motorcycles, boats, or even airplanes, can typically be retitled to the name of the trust if they are owned outright. Transferring the motor vehicle title to the trust is the most certain way to avoid probate. However, it can also result in some inconveniences like the need to visit the Department of Motor Vehicles, difficulty when selling the vehicle, or even transfer fees that apply to the change of title. Consequently, if one wishes to have their vehicle titled in the name of the trust, the most efficient solution is to purchase it in the name of the trust, if possible. Alternatively, a vehicle owner in Nevada can designate a beneficiary via the transfer on death application form. Sometimes, the affidavit for transfer of title for estates without probate can be used. Oftentimes, the value of the vehicle determines whether a transfer to the trust is the most effective solution.
Generally, the revocable living trust is designed to allow the estate to avoid a probate proceeding. Any assets left out of trust accidently, without an alternate method of distribution, defeat the purpose of the trust. Consequently, most assets should be placed in the trust and the assets left out of the trust should have designated beneficiaries.
Natalia Vander Laan is a Minden attorney.