Trust vs POD vs joint owner vs beneficiary

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Juno2222
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Trust vs POD vs joint owner vs beneficiary

Post by Juno2222 » Tue Jan 14, 2020 7:22 pm

Mother has assets approx $1M. Rev living trust drawn up > 10+ years ago, and all assets (bank accounts, two homes, etc) were titled in the name of her revocable living trust at that time. However in the interim years, we opened up many, many, many new bank/credit union accounts to chase higher CD rates. Some were so much hassle to title in the name of her trust (or the rates were not offered to trust accounts), we just opened personal accounts. Going forward, we are reviewing all of the forms each bank/CU requires to retitle in the name of the trust, and since they all require different forms, copies of the trust, notaries, etc would just adding myself (daughter, only child) as a joint owner or beneficiary or POD accomplish avoiding probate when she passes? I will inherit everything via revoc living trust, no other siblings, no debt. She is the initial trustee, I am the successor trustee. I help her with all of her financial decisions (have for many years). Going back to original estate firm to rewrite trust is > $2K. What are the pros/cons of account joint ownership (taxes?) vs POD vs adding me as a beneficiary on the bank accounts?

GAAP
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Re: Trust vs POD vs joint owner vs beneficiary

Post by GAAP » Tue Jan 14, 2020 7:40 pm

Maybe things have changed, but it used to be that adding your name to the account was treated as a gift, and subject to gift tax limits.

Does her trust have an addendum that could be added, listing the accounts? My mom's trust had a general "everything else" clause that pretty much covered any assets that she forgot to add directly. My guess is that an attorney would prefer to update a 10+ year trust anyway -- too many legal things (case law, etc.) change over that long a time.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

senex
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Re: Trust vs POD vs joint owner vs beneficiary

Post by senex » Tue Jan 14, 2020 10:01 pm

If your goal is to avoid probate, all the things you mentioned will accomplish that.

Joint titling may be deemed a gift of half the account value, but I’ve read many differing interpretations, including that it isn’t recognized as a gift until you use the money on yourself; it seems to be a hazy area of the law (I’m not an attorney). One clear downside of joint titling is that you’ll only get half the cost basis stepped up at death, compared to full for beneficiary or TOD. (Basis step-up may be mostly irrelevant if all she has in those accounts are CDs)

Katietsu
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Re: Trust vs POD vs joint owner vs beneficiary

Post by Katietsu » Wed Jan 15, 2020 2:45 am

I am not a lawyer so maybe there is a subtlety that I do not understand but, as far as I know, POD and adding you as a beneficiary are the same action.

I do not like joint accounts between adult children and parents. First of all, it just seems messy. Second of all, your mother’s money could be at risk from your debts and creditors. You could cause a traffic accident and the joint account with Mom could be at risk. You could be in an accident and need a nursing home before Mom does. Life is not always predictable and there can be unforeseen circumstances that could really change the plans you have made.

A small joint account to handle final expenses would be one exception that I would consider.

rossington
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Re: Trust vs POD vs joint owner vs beneficiary

Post by rossington » Wed Jan 15, 2020 3:26 am

Mother has assets approx $1M. Rev living trust drawn up > 10+ years ago, and all assets (bank accounts, two homes, etc) were titled in the name of her revocable living trust at that time. However in the interim years, we opened up many, many, many new bank/credit union accounts to chase higher CD rates. Some were so much hassle to title in the name of her trust (or the rates were not offered to trust accounts), we just opened personal accounts.
How were these accounts opened in her name outside of the trust? I don't see how that would be possible.
Or did she give you the funds first and you opened them in your name only?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

bsteiner
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Re: Trust vs POD vs joint owner vs beneficiary

Post by bsteiner » Wed Jan 15, 2020 9:08 am

The main issue here is whether to provide for you in trust rather than outright, to keep your inheritance out of your estate for estate tax purposes, and to protect it against your creditors and spouses, and Medicaid. For $1 million most of our clients would have Wills that provide for their children in separate trusts rather than outright, with each child controlling her own trust (absent a reason for a child not to control her trust in a particular case).

If the risk of your having a taxable estate, creditors, getting divorced, outliving your spouse and remarrying, or going into a nursing home and wanting Medicaid, is sufficiently small, then your mother can leave her estate to you outright. With only one child, ignoring the possibility that you predecease her, it doesn't much matter whether she does so in her Will, in a revocable trust, or with beneficiary designations. In most states we would probably do it in a Will, but if she's in California where someone said in a recent thread that it took two years to probate a Will we would do it in a revocable trust.

With more than one child, even if she would be providing for her children outright, I wouldn't do it by beneficiary designation (except for life insurance and retirement benefits), since that could make it more difficult to pay debts, taxes and expenses and to otherwise deal with things if one child doesn't cooperate.

Lanerious
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Re: Trust vs POD vs joint owner vs beneficiary

Post by Lanerious » Wed Jan 15, 2020 9:21 am

Have you considered having her maintain the personal deposit accounts and naming her Trust as POD beneficiary on the accounts?

Topic Author
Juno2222
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Re: Trust vs POD vs joint owner vs beneficiary

Post by Juno2222 » Wed Jan 15, 2020 12:51 pm

This forum is incredible, with such intelligent, varying and thought provoking suggestions, thank you all.
@GAAP, I wonder if adding an addendum as you suggest (have mom sign, get notarized) will be legally binding? This would be preferable to revising the trust each time a new account is opened.
@ senep, good point about cost basis, as she does have some mutual funds in non-retirement accounts
@ Katiestu, thanks for pointing out RE: joint accounts and the possibility of accidents, lawyers, etc. which I had not considered, both for her protection and mine
@ rossington have both a personal account and trust accounts at several institutions. Additional benefit, it entitles her to 2x FDIC limits in case of bank failure. Has not been an issue. Maybe it depends on the institution?
@ bsteiner, hmmm, thank you for your comments. My net worth is similar to hers, so "keeping my inheritance out of my estate for estate tax purposes" is worth considering. I don't think I've ever concerned myself with repercussions this far into the future.....
@ Lanerious, I will ring her banks/cu and see if this can be done. This sounds like a great option that I had not considered.

straws46
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Re: Trust vs POD vs joint owner vs beneficiary

Post by straws46 » Wed Jan 15, 2020 1:07 pm

It seems in your case a trust may be unnecessary. If you are the sole beneficiary under the trust and if your offspring take in the event you predecease your mother and those offspring are now adults (granted a lot of assumptions) your mother's intentions probably would be met by naming you as Pay On Death or Transfer On Death on all assets. With a trust you avoid probate if 100% of the assets are in the trust, but the successor trustee must collect all of the assets, get a tax ID for the trust, pay all bills of the trustor, and file a 1041 and K-1s for the income earned from date of death until final distribution. It's not as automatic as a lot of people think.

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