If you are reading this article, it is safe to assume that you are trying to avoid probate, or the official validation of a will. For individuals attempting to avoid the frustrating process of probate, a revocable living trust can be a viable option.
Revocable living trusts are particularly useful in a handful of states including California and Ohio as these states have more complex probate processes. The states with the more complex probate procedures tend to be more averse to the probate process as it can be lengthy and costly for all parties involved. People who own multiple properties in more than one state are also ideal candidates for this type of trust as it can keep probate court dealings limited to one rather than multiple courts.
As with everything, there is always a flipside. Revocable living trusts often require more work upfront and costs often exceed that of a traditional will. You also have to go through the process of selecting a durable power of attorney, appointing guardianship for benefactors like children and animals, and creating an advance health-care directive. These documents are still required even if you do have a revocable living trust.
Question 1: Can my trust be the beneficiary of a retirement plan?
In an effort to keep things brief, the answer is yes. Revocable living trusts can be named as the beneficiary of a retirement plan including IRAs, 403(b)s, and select cash-balance pension plans. Just because it’s possible doesn’t mean it will work in your favor. Many issues can arise including those related to a distribution schedule and tax considerations that don’t maximize financial gains.
The puzzle can grow even more complex when an employer plan such as a 401(k) comes into play. These plans are subject to ERISA, or the Employee Retirement Income Security Act, which mandates that the main beneficiary has to the spouse unless consent to another party is expressed. In some cases, it is possible to make the living trust a contingent beneficiary, but it ultimately depends on the plan.
People who are considering leaving their estates with a charity must also consider that it’s typically more beneficial to leave a traditional individual retirement account – or a specified amount from the account – directly to whichever charity you desire. By doing so, it ensures that the charity receives the donation amount in full rather than have income tax deducted. In the instance that you name the trust as a beneficiary, an income tax may be levied against the account before any money is released. Working with an estate planning attorney and a tax advisor is advisable in scenarios like these.
Question 2: I have a mortgage on my home so should I worry about my mortgage’s “due on sale” clause that forces the mortgage to be paid in full if the title is transferred?
A mortgage company’s “due on sale” clause should not be triggered upon the transfer of a home to a revocable trust. This due to a little-known federal statute under the category FDIC Laws, Regulations, Related Acts 8000 – Miscellaneous Statutes and Regulations Part 591 – Preemption Of State Due-On-Sale Laws Sections 591.1-591.6. This clause outlines certain exceptions where the due-on-sale clause can and can’t be enforced.
Regardless of whether this can be upheld in a court of law, it’s still advisable to make the lender aware of the change in advance so you can use the federal statute in your defense.
Question 3: How do I find an experienced estate or probate attorney near me?
With the rise of the Internet, it can be as easy as a Gooogle Search. A great place to start is the American College of Trust and Estate Counsel’s website. This nationally recognized organization holds a database of over 2,500 lawyers and law professors who undergo a strict vetting process to get in. For starters, these individuals must be nominated by peers to be considered for membership. People can search the website based on location so this will help you narrow your search down.
Another method of finding an estate attorney or probate attorney is by referring to your state bar association. They can refer lawyers based on individual needs and there is no question that they withstand the strict and individualized codes of each state. Do your own research – pay attention to the licensing information and prior successes in the area.
These questions are a great introduction to some of the more common issues with revocable trusts. For additional questions or to start the process of putting your estate into a revocable trust, please contact one of our highly regarded lawyers today!
