To avoid probate and its delays and expenses, a person must take the deliberate steps of titling all their assets properly. This includes brokerage accounts, bank accounts, shares of a closely held business, royalty payments and real estate. These assets must be put into the trust while you’re alive, to avoid probate or be distributed to the trust as a beneficiary upon your death.
Insurance News Net recently published an article, “Funding your trust and avoiding probate,” that explains that your will probably leaves everything to your trust. However, wills must pass through probate. As a result, people frequently place most of their holdings in trust, but often forget about a few assets. If the assets aren't titled in the name of the trust, those assets must be probated, unless they are within the dollar limits of any applicable state small estate statute. In California, the probate threshold is $150,000.
Some assets will not be controlled by the trust at all. Assets owned jointly with the right of survivorship pass directly to the survivor, regardless what the estate planning documents say. There are assets like IRAs, annuities, and life insurance that pass directly to the beneficiaries who were designated by the owner at the time the account was started or by a subsequent change that the owner made. In some circumstances, as noted above, the owner of those types of accounts will name their trust as the beneficiary. This can be ideal for life insurance contracts, because the death benefits are income tax free. However, there are some tax considerations to understand before naming a trust as the beneficiary of an annuity or IRA. Some trusts don’t allow the IRA to be stretched for continued tax deferral. In addition, no trusts allow a deferred annuity to be stretched. The annuity proceeds must be distributed over five years, if the trust is the owner or beneficiary. In certain cases, it's better to have the annuity or IRA avoid the trust and pass to the beneficiaries directly.
Talk to your estate planning attorney about what is best for your specific situation.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Insurance News Net (June 30, 2019) “Funding your trust and avoiding probate”