Living trusts and relabeling accounts

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edgeagg
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Living trusts and relabeling accounts

Post by edgeagg » Fri Sep 14, 2018 5:15 pm

Hello all,
Tried googling this over the bogleheads site, but did not get any decent information, so hope this isn't a FAQ.

As part of our wills, my wife and I established a family trust since our assets are substantial (~5M). I've been told that I need to relabel my accounts to indicate that they belong to the trust. The question that I have is that of which accounts to relabel:

(1) Do I relabel any joint bank, joint brokerage accounts and commonly held real estate (our house)? Assume yes.
(2) Do I relabel assets that are held purely in my name (stock grants from an earlier employer)?
(3) IRAs?

thanks for the help,
kv

delamer
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Re: Living trusts and relabeling accounts

Post by delamer » Fri Sep 14, 2018 5:20 pm

When we redid our will, our attorney prefilled all the forms that we needed to change our account beneficiaries and/or registration. All we had to do was sign and mail them.

I’d go back to you attorney and find out exactly what you need to do.

mrsbetsy
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Re: Living trusts and relabeling accounts

Post by mrsbetsy » Fri Sep 14, 2018 5:28 pm

Everything was relabeled in the trust and even our term insurance was changed so the trust is the first beneficiary.

Our attorney did it all for us. That's why you pay them the big bucks.

123
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Re: Living trusts and relabeling accounts

Post by 123 » Fri Sep 14, 2018 5:30 pm

delamer wrote:
Fri Sep 14, 2018 5:20 pm
I’d go back to you attorney and find out exactly what you need to do.
+1 See an attorney. You can make a trust the beneficiary of an IRA but it may not be advisable because of the potential tax advantages direct beneficaries may receive. With regard to other assets in your name careful thought, and the advice of your attorney, is the best advice. Some assets with some custodians may not be easily changable to accommodate ownership by the trust, but alternate ways/custodians to hold those assets can be considered.
The closest helping hand is at the end of your own arm.

NotWhoYouThink
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Re: Living trusts and relabeling accounts

Post by NotWhoYouThink » Fri Sep 14, 2018 5:36 pm

You should talk to the attorney about what the trust is doing for you, and about what accounts and assets should be retitled. Bring a list, and talk about whether and how to retitle each asset. That should be a standard part of the service for creating the estate plan. We were able to do the actual retitling ourselves, except for the house.

Brokerage and bank accounts, probably.

Real estate, probably, but...If you have a mortgage, you may not be able to change ownership of the home from individuals to a trust. Even if there is no mortgage you need to make sure your insurance policy reflects the new ownership.

Stock grants, probably.

IRAs and 401Ks, no. These are individual accounts.

Life insurance policy beneficiary should be the trust, but I'm wondering if you need life insurance with that level of assets.

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Re: Living trusts and relabeling accounts

Post by LarryAllen » Fri Sep 14, 2018 5:52 pm

edgeagg wrote:
Fri Sep 14, 2018 5:15 pm
Hello all,
Tried googling this over the bogleheads site, but did not get any decent information, so hope this isn't a FAQ.

As part of our wills, my wife and I established a family trust since our assets are substantial (~5M). I've been told that I need to relabel my accounts to indicate that they belong to the trust. The question that I have is that of which accounts to relabel:

(1) Do I relabel any joint bank, joint brokerage accounts and commonly held real estate (our house)? Assume yes.
(2) Do I relabel assets that are held purely in my name (stock grants from an earlier employer)?
(3) IRAs?

thanks for the help,
kv
You should of course talk to your attorney as there could be separate property/community property issues among other things but generally:
1) Yes to all of those. Some people leave their every day checking account out of the trust. I disagree with this plan though. I think all should be in.
2) Yes if the company allows it.
3) IRAs can not be owned by a trust while you are alive. You can make a trust a beneficiary but generally that is not the best choice. Generally spouse as primary and kids as contingent if they are responsible adults. If kids not responsible adults then naming the trust is a good option. Your trust should have required language so it can still stretch. Again, your attorney can help with this.

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HueyLD
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Re: Living trusts and relabeling accounts

Post by HueyLD » Fri Sep 14, 2018 7:43 pm

edgeagg wrote:
Fri Sep 14, 2018 5:15 pm
I've been told that I need to relabel my accounts to indicate that they belong to the trust.
By whom? Did a lawyer prepare your family trust, or did you DIY?

If the trust was prepared by a qualified attorney, (s)he should have provided written instructions as to how to retitle your assets in the name of the trust. Or the law firm may offer to do asset transfer for you (for a fee of course).

If you DIY, you will need to contact each institution to have assets retitled. This is the biggest challenge after a trust is created. Many people failed to transfer assets and thus making the trust worthless.

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Peter Foley
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Re: Living trusts and relabeling accounts

Post by Peter Foley » Fri Sep 14, 2018 7:54 pm

Again, the lawyer should advise. However, before you talk to the lawyer study up on inherited IRAs.

You may want to leave them out of the trust with your wife as beneficiary and your children as contingent beneficiaries. If you are going to name the trust as a beneficiary get legal help so that it is done properly.

Are there estate taxes in your state of residence?
How old are your children and can they manage money responsibly?

Lots of issues here.

afan
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Re: Living trusts and relabeling accounts

Post by afan » Sat Sep 15, 2018 5:12 am

How things are titled depends on your overall estate plan and your state law.

Changing ownership of assets could foil some of your plans. For an asset that is yours alone and you intend to keep it that way putting it in a joint trust could be a problem.

Putting your home in a jount trust could give away asset protection if your state offers tenants by the entirety for ownership by a married couple of their home.

If your lawyer knew about the stock grants in your name only then they should be part of the plan. It will just be a matter of where they fit. If your lawyer knew there was stock but not that it was in your name only then this may not be accounted for in your plan.

You get significant asset protection by making a trust the contingent beneficiary, after your spouse, of your retirement assets. This is generally better than leaving the assets to your kids outright. If you search the forum there are explanations of why this is the case. Some attorneys will have taken this into account, others might not. If it is part of the plan your attorney created this should have been explained to you.

To make this part work correctly the trust has to have been drafted with retirement assets in mind and include specific provisions that permit the beneficiaries to stretch the distributions over their life expectancy. Without these provisions they would be forced to take out all the money within 5 years and lose decades of tax deferral.

You need to make a list of assets and how they are currently held, then ask the attorney what to do with each one. Your attorney should have asked for this list before preparing your estate plan. If so, then it should be simple for them to tell you what goes where. If the attorney did not ask for this there is essentially no chance your plan was done right. In either case, don't do anything until you get instructions.

The actual retitling of assets and revising beneficiary designations is easy and you can do it yourself, except for real estate.
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edgeagg
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Re: Living trusts and relabeling accounts

Post by edgeagg » Sat Sep 15, 2018 4:25 pm

HueyLD wrote:
Fri Sep 14, 2018 7:43 pm
edgeagg wrote:
Fri Sep 14, 2018 5:15 pm
I've been told that I need to relabel my accounts to indicate that they belong to the trust.
By whom? Did a lawyer prepare your family trust, or did you DIY?
A lawyer prepared it, but it was approximately 4 years ago.

If the trust was prepared by a qualified attorney, (s)he should have provided written instructions as to how to retitle your assets in the name of the trust. Or the law firm may offer to do asset transfer for you (for a fee of course).
To be honest, we did not get off our a** in time. I was looking through the papers and did not see such instructions. However, most of our assets are in a couple of insttitutions.

If you DIY, you will need to contact each institution to have assets retitled. This is the biggest challenge after a trust is created. Many people failed to transfer assets and thus making the trust worthless.
Excellent point, thanks Huey! But better late than never!

edgeagg
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Re: Living trusts and relabeling accounts

Post by edgeagg » Sat Sep 15, 2018 4:33 pm

afan wrote:
Sat Sep 15, 2018 5:12 am

You get significant asset protection by making a trust the contingent beneficiary, after your spouse, of your retirement assets. This is generally better than leaving the assets to your kids outright. If you search the forum there are explanations of why this is the case. Some attorneys will have taken this into account, others might not. If it is part of the plan your attorney created this should have been explained to you.

To make this part work correctly the trust has to have been drafted with retirement assets in mind and include specific provisions that permit the beneficiaries to stretch the distributions over their life expectancy. Without these provisions they would be forced to take out all the money within 5 years and lose decades of tax deferral.
Thanks Afan, I will read up about this.

Also, thanks so much to everyone who replied. It is folks like you who make bogleheads such a vibrant, wonderful and helpful place. Thanks so much!!

RickBoglehead
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Re: Living trusts and relabeling accounts

Post by RickBoglehead » Sat Sep 15, 2018 5:04 pm

To clarify, you are changing ownership, not "relabeling".

Your attorney did not do his/her job.

edgeagg
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Re: Living trusts and relabeling accounts

Post by edgeagg » Sun Sep 16, 2018 8:30 am

@RickBoglehead: Yes, agree. The attorney was a free service through work ......

bsteiner
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Re: Living trusts and relabeling accounts

Post by bsteiner » Sun Sep 16, 2018 9:45 am

edgeagg wrote:
Fri Sep 14, 2018 5:15 pm
...
As part of our wills, my wife and I established a family trust since our assets are substantial (~5M). ...
edgeagg wrote:
Sun Sep 16, 2018 8:30 am
... The attorney was a free service through work.
You may or may not have gotten your money's worth. That service may be sufficient for most people, but may not be for someone worth $5 million.

You're focusing on the least important thing. More important are the dispositive provisions (who gets what, the degree of control the surviving spouse has, the age (if any) when each child gets to control his/her share, and the trustees for each beneficiary), and the special requirements for trusts that are the beneficiaries of retirement benefits.

edgeagg
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Re: Living trusts and relabeling accounts

Post by edgeagg » Sun Sep 16, 2018 9:57 am

bsteiner wrote:
Sun Sep 16, 2018 9:45 am

You're focusing on the least important thing. More important are the dispositive provisions (who gets what, the degree of control the surviving spouse has, the age (if any) when each child gets to control his/her share, and the trustees for each beneficiary), and the special requirements for trusts that are the beneficiaries of retirement benefits.
Hi BSteiner: Yes, the will does detail the dispositive provisions regarding the disbursements and degree of control for the trust.

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Re: Living trusts and relabeling accounts

Post by edgeagg » Thu Sep 20, 2018 4:14 pm

Just a follow up:

I called VG to understand what I'd have to do to make the trust a secondary beneficiary. All went as expected except for a taxable account held jointly between me and my wife. Apparently VG joint accounts cannot have trusts as secondary beneficiaries. I guess that it makes sense, but is a little counter-intuitive at first.
ea

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FIREchief
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Re: Living trusts and relabeling accounts

Post by FIREchief » Thu Sep 20, 2018 6:17 pm

edgeagg wrote:
Thu Sep 20, 2018 4:14 pm
Just a follow up:

I called VG to understand what I'd have to do to make the trust a secondary beneficiary. All went as expected except for a taxable account held jointly between me and my wife. Apparently VG joint accounts cannot have trusts as secondary beneficiaries. I guess that it makes sense, but is a little counter-intuitive at first.
ea
It makes no sense at all and apparently is limited to VG. It's not just trusts, but VG has in most cases not allowed any type of beneficiary for a joint account (primary, secondary or anything else). Many here on the forum have encountered this and it is baffling why VG doesn't "get it." :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

jgt808
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Re: Living trusts and relabeling accounts

Post by jgt808 » Thu Sep 20, 2018 8:59 pm

Eggagg-I also had the same issue with the joint ownership of our taxable brokerage account at VG. I eventually changed to sole ownership and named my spouse as the primary beneficiary and the trust as the contingent. I was told this is advantageous because 1) If we both die at the same time, the trust will be beneficiary and 2) the cost basis for a joint account is 50% step up basis to the joint owner, leaving some tax burden on my spouse. Although it was a slim possibility we would both pass at the same time, I figured it was worth the hassle to change to indivudual ownership due to the unnecessary tax burden. I'm still learning as I go with this too.

bighatnohorse
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Re: Living trusts and relabeling accounts

Post by bighatnohorse » Thu Sep 20, 2018 9:26 pm

Yes, real estate has to be re-titled with the trust name ie; Smith Family Trust, John and Jane Doe Family Trust, etc.
You will have to file a Quit Claim Deed to the Family Trust name with the assessor's office.
Your attorney should have given you a document titled "Certificate of Trust" or similar proof that you have.

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Re: Living trusts and relabeling accounts

Post by bsteiner » Thu Sep 20, 2018 11:17 pm

bighatnohorse wrote:
Thu Sep 20, 2018 9:26 pm
Yes, real estate has to be re-titled with the trust name ie; Smith Family Trust, John and Jane Doe Family Trust, etc.
You will have to file a Quit Claim Deed to the Family Trust name with the assessor's office.
...
Why a quit claim deed?

JBTX
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Re: Living trusts and relabeling accounts

Post by JBTX » Fri Sep 21, 2018 10:10 am

A few related question regarding revocable living trusts

Joint bank accounts - if the account is not in trust name, but has RLC as 2nd beneficiary, I assume this means the account will pass to spouse outside of probate, but if both spouses die, would go to the trust through probate?

TOD accounts - same question as above

Also curious about the comment above about losing asset protection by putting home in trust. Is that an issue for TX?

edgeagg
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Re: Living trusts and relabeling accounts

Post by edgeagg » Fri Sep 21, 2018 11:48 am

bsteiner wrote:
Thu Sep 20, 2018 11:17 pm
bighatnohorse wrote:
Thu Sep 20, 2018 9:26 pm
......
You will have to file a Quit Claim Deed to the Family Trust name with the assessor's office.
...
Why a quit claim deed?
Yes, like BSteiner, I'm confused about the quitclaim part.

edgeagg
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Re: Living trusts and relabeling accounts

Post by edgeagg » Fri Sep 21, 2018 12:28 pm

jgt808 wrote:
Thu Sep 20, 2018 8:59 pm
2) the cost basis for a joint account is 50% step up basis to the joint owner, leaving some tax burden on my spouse.
@Jgt808: I am bit confused by the quoted statement above. In my case, in Washington, which is a community property state, I believe that the entire amount gets the stepped up cost basis. It may well be different in other states, where 50% is available for the revised basis. BUT why would having a joint vs a single held account make a difference?

ea

bighatnohorse
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Re: Living trusts and relabeling accounts

Post by bighatnohorse » Fri Sep 21, 2018 1:06 pm

bsteiner wrote:
Thu Sep 20, 2018 11:17 pm
bighatnohorse wrote:
Thu Sep 20, 2018 9:26 pm
Yes, real estate has to be re-titled with the trust name ie; Smith Family Trust, John and Jane Doe Family Trust, etc.
You will have to file a Quit Claim Deed to the Family Trust name with the assessor's office.
...
Why a quit claim deed?
Sorry, it's been nearly a decade since I did this last and I probably got it wrong or just don't correctly remember.

dcdowden
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Re: Living trusts and relabeling accounts

Post by dcdowden » Fri Sep 21, 2018 1:38 pm

OP mentioned trusts created by a will - which I believe are called testamentary trusts - they don't exist until you die. Our first set of wills created these testamentary trusts to deal with assets that our young children could not manage on their own at that point. There was no need to re-title assets in that situation.

When we redid our estate plan several years ago, we established revocable living trusts and our attorney helped us re-title property and change beneficiaries appropriately.

It was not clear to me what type of trust the OP was talking about.

straws46
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Re: Living trusts and relabeling accounts

Post by straws46 » Fri Sep 21, 2018 2:12 pm

A quit claim deed transfers whatever interest you have in the land but does not include any warranties of title to the grantee. Since your trust is the grantee why would you make any warranties to yourself? So you can sue yourself if there is a problem with the title? Every lawyer I know would prepare a quit claim deed for you. Also, quit claims are traditionally used for gifts. Nothing worse than making a gift and then being sued by the donee because there was a defect in the title that you didn't know about.

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Re: Living trusts and relabeling accounts

Post by Lafder » Sat Sep 22, 2018 9:40 am

** I double checked with someone who transferred assets to their trust in the past few years in my state. They said "The attorney who did the trust prepared warranty deeds as if the home was being sold, to transfer it from the individuals to the trust."

lafder

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HueyLD
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Re: Living trusts and relabeling accounts

Post by HueyLD » Sat Sep 22, 2018 9:36 pm

Lafder wrote:
Sat Sep 22, 2018 9:40 am
** I double checked with someone who transferred assets to their trust in the past few years in my state. They said "The attorney who did the trust prepared warranty deeds as if the home was being sold, to transfer it from the individuals to the trust."

lafder
+1.

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HueyLD
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Re: Living trusts and relabeling accounts

Post by HueyLD » Sat Sep 22, 2018 9:45 pm

jgt808 wrote:
Thu Sep 20, 2018 8:59 pm
Eggagg-I also had the same issue with the joint ownership of our taxable brokerage account at VG. I eventually changed to sole ownership and named my spouse as the primary beneficiary and the trust as the contingent. I was told this is advantageous because 1) If we both die at the same time, the trust will be beneficiary and 2) the cost basis for a joint account is 50% step up basis to the joint owner, leaving some tax burden on my spouse. Although it was a slim possibility we would both pass at the same time, I figured it was worth the hassle to change to indivudual ownership due to the unnecessary tax burden. I'm still learning as I go with this too.
The problem with you having an individual account with spouse as the beneficiary is that if the spouse dies first, your account will receive zero percent step-up. Yes, ZERO instead of 50%.

That is where community property states have advantage over noncommunity property states. If properties are titled properly as community property, then all properties will receive 100% step-up when one spouse dies or both spouses die. And the basis will be stepped up again when the second spouse dies.

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FIREchief
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Re: Living trusts and relabeling accounts

Post by FIREchief » Sun Sep 23, 2018 1:25 am

HueyLD wrote:
Sat Sep 22, 2018 9:45 pm
If properties are titled properly as community property, then all properties will receive 100% step-up when one spouse dies or both spouses die. And the basis will be stepped up again when the second spouse dies.
If in a community property state, I don't believe that a property needs to be titled as "community property" in order to be treated as community property by the IRS.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

jgt808
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Re: Living trusts and relabeling accounts

Post by jgt808 » Sun Sep 23, 2018 2:58 am

HueyLD wrote:
Sat Sep 22, 2018 9:45 pm
jgt808 wrote:
Thu Sep 20, 2018 8:59 pm
Eggagg-I also had the same issue with the joint ownership of our taxable brokerage account at VG. I eventually changed to sole ownership and named my spouse as the primary beneficiary and the trust as the contingent. I was told this is advantageous because 1) If we both die at the same time, the trust will be beneficiary and 2) the cost basis for a joint account is 50% step up basis to the joint owner, leaving some tax burden on my spouse. Although it was a slim possibility we would both pass at the same time, I figured it was worth the hassle to change to indivudual ownership due to the unnecessary tax burden. I'm still learning as I go with this too.
The problem with you having an individual account with spouse as the beneficiary is that if the spouse dies first, your account will receive zero percent step-up. Yes, ZERO instead of 50%.

That is where community property states have advantage over noncommunity property states. If properties are titled properly as community property, then all properties will receive 100% step-up when one spouse dies or both spouses die. And the basis will be stepped up again when the second spouse dies.
Hi Huey-
Thank you, but I must be confused. I guess I don't understand how inherited step up and trusts work. My understanding is that if I own an individual VG taxable brokerage account and my spouse is the primary beneficiary and I pass, he can inherit the funds at step up basis cost on the date of my death. That's how it worked from my Dad's inherirtence to us kids. And the trust names my son so it's a look through trust where he can 'stretch' the distributions. Sorry, I must be overlooking something very obvious. Are you saying that if my spouse passes before I do in this situation, that I somehow have a tax liability? I am in Hawaii a non community property state. Here is from Motley Fool
-----
For inherited mutual fund shares in regular taxable accounts, the tax basis gets stepped up to whatever their value was on the date of death. That's true for all fund shares, regardless of when they were bought, or whether they were obtained through outright purchase, or from reinvestment of fund distributions.
---------
edit: I just read up and realized there are different joint ownership type. I previously had the VG in JTWROS. Would there be an option for Tenancy by Entirety like for property? I'm new to this, so sorry if I need this spelled out.

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HueyLD
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Re: Living trusts and relabeling accounts

Post by HueyLD » Sun Sep 23, 2018 6:52 am

FIREchief wrote:
Sun Sep 23, 2018 1:25 am
HueyLD wrote:
Sat Sep 22, 2018 9:45 pm
If properties are titled properly as community property, then all properties will receive 100% step-up when one spouse dies or both spouses die. And the basis will be stepped up again when the second spouse dies.
If in a community property state, I don't believe that a property needs to be titled as "community property" in order to be treated as community property by the IRS.
Your belief may not be a solid strategy. My estate attorney advised me to get the titling right on the front end to prevent having to prove that a property is indeed community property after I am dead. Presumption of community property can be challenged.
Last edited by HueyLD on Sun Sep 23, 2018 6:58 am, edited 1 time in total.

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HueyLD
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Re: Living trusts and relabeling accounts

Post by HueyLD » Sun Sep 23, 2018 6:56 am

I must be overlooking something very obvious. Are you saying that if my spouse passes before I do in this situation, that I somehow have a tax liability? I am in Hawaii a non community property state.
No, you the surviving spouse will not have a tax liability but you will get zero basis step-up because your spouse was not the owner of the property.

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Re: Living trusts and relabeling accounts

Post by bsteiner » Sun Sep 23, 2018 7:04 am

jgt808 wrote:
Sun Sep 23, 2018 2:58 am
... My understanding is that if I own an individual VG taxable brokerage account and my spouse is the primary beneficiary and I pass, he can inherit the funds at step up basis cost on the date of my death. That's how it worked from my Dad's inheritance to us kids. And the trust names my son so it's a look through trust where he can 'stretch' the distributions. Sorry, I must be overlooking something very obvious. Are you saying that if my spouse passes before I do in this situation, that I somehow have a tax liability? I am in Hawaii a non community property state. ...

... I previously had the VG in JTWROS. Would there be an option for Tenancy by Entirety like for property? I'm new to this, so sorry if I need this spelled out.
With a few exceptions, your estate and beneficiaries get a new basis for your assets equal to the date of death value. It doesn't matter who receives your assets.

In the case of property owned jointly by a married couple, the surviving spouse gets a new basis equal to 50% of the date of death value plus 50% of the basis immediately before death.

Tenants by the entirety is a special form of joint ownership by a married couple in which neither spouse can transfer his/her interest without the consent of the other. It generally provides greater creditor protection. About half the states allow it for real property, and a few states also allow it for personal property. New York allows it for co-op apartments but not for other types of personal property.

One exception is community property. Upon the death of either spouse, both halves of the property get a new basis equal to the date of death value. It doesn't matter who receives the deceased spouse's half of the community property.

Another exception is retirement benefits such as IRAs. The beneficiaries of retirement benefits don't get a new basis. If there weren't any nondeductible contributions, the basis remains zero.

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