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Elderlaw: 10/01/2011

Elderlaw Advocates

Dear Len & Rosie,

We are having our trust updated and have had two different opinions on checking accounts and CDs. Should we have our regular checking account in the trust? Should we have the money market account with Schwab in the trust? Should we have the CD in the trust?


Dear Frank,

As a general rule, you should retitle all of your assets into your trust, but there are exceptions. Don’t bother going to the DMV to transfer your vehicles into the trust. Chances are, you’ll dispose of all of your vehicles before your death anyway. If you die owning an automobile, your heirs can retitle it in their names at the DMV 40 days or more after your death. All they need is your death certificates, the vehicle’s title and registration, and DMV Form REG-5.

And unless your lawyer advises you to do otherwise, do not transfer any retirement account into your trust or name your trust as a retirement account beneficiary. Transferring a retirement account into a trust means you’re cashing in the account, and you’ll have to pay income tax on all of that money all at once. And in many cases, IRAs, 401Ks and other retirement accounts paying into a trust have to be cashed out within five years of your death.

It is possible for a trust to roll over a retirement account into an Inherited IRA, but most of the time it isn’t worthwhile. The only time you should seriously consider naming a trust as a retirement account beneficiary is if you have a minor or disabled child, or a spendthrift child who will spend a buck fifty for every dollar you leave them.

On the other hand, if you and your wife name one another as primary beneficiary of each of your retirement accounts, and you name your children or other chosen heirs as contingent beneficiaries, then they will be able to roll over the accounts into Inherited IRAs, allowing them to cash in your retirement accounts over their own lives.

Finally, it’s usually a good idea to keep your day-to-day checking account outside of your trust. Instead, title the account in you and your wife’s names, and add a trusted child on the account as either a joint tenant or just give the child signature authority on the account.

There’s a good reason for this. If you and your wife become incapacitated, the persons you named as successor trustees of your trust will take over and manage the trust and pay your bills. But that cannot happen overnight. To remove you as a trustee, it’s necessary for a physician or two to determine that you are incapable of managing your affairs and protecting yourself from undue influence. And after that happens, your successor trustees will have to sign legal documents prepared by your attorney and deliver them to the bank to be added to your accounts as trustees. That can take several weeks, so who’s going to pay your PG&E bill in the meantime? If you give someone you trust the ability to sign checks on your behalf now, they will already have the ability to pay your bills in the event of an emergency. It will make things easier for your family.

Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.

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