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 in the trust?
Should we have the CD in the trust?
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. 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 DMV Form REG-5.
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, 401(k)s and other retirement accounts paying into a trust must 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 doing so 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.
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 are named 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.
As for your checking account, it is usually a good idea to keep the account outside of your trust.
Instead, title the account in you and your wife’s names. Then, when one of you starts slowing down, add someone you trust to the account so he or she may write checks in the event of a death or incapacity.
When you and your wife die or become incapacitated, your successor trustee will take over, but that cannot happen overnight.
It takes a couple of weeks to round up certificates of death or doctor letters to allow for your removal as trustee.
If you add someone to your checking account now, it will make that person’s job easier when the time comes.
Len & Rosie