I recently purchased an exercise wrist watch. The watch can track my exercise, blood pressure and probably even how many times I take a breath each day. It also allows me to text and call people.
I expect that my watch will also stream movies or Ohio State football games. However, those tasks are best done on my phone or computer.
Thus, I will almost certainly not use all of the tools that my new watch provides, and I probably should not use some of the tools that my watch provides.
Similarly, many of us have trusts that we organized years ago that include tools of which we are not aware or that we are not fully using. And, we may be using our trusts for tasks that are best handled independently from our trusts.
The biggest recognized value of trusts is the ability to have assets be distributed to our heirs without being administered through probate.
For a trust to do its job in having assets avoid probate, those assets must either be in the trust before the trust-maker dies, or the assets must be set to automatically go to the trust upon the trust-maker’s death.
In other words, if I have a tractor but if I have not made that tractor subject to the rules of the trust before I die, the tractor will go through probate to get “into” my trust and subject to the rules of my trust. The trust does not avoid the tractor having to go through probate unless the tractor is actually “in” the trust before I die.
Alternatively, I can have a bank account that I own personally that is set up with the bank to be “paid on death” to my trust (technically to the trustee of my trust when I die). That account will avoid probate if it is in the trust while I am alive or if the account is payable on death to my trust when I die. If the account is not organized in one of these fashions with the bank, the money in that bank account will go through probate in order to get into the trust.
Therefore, for a trust to help assets avoid probate, those assets must be in the trust before death or must be contractually set to automatically go into the trust upon the death of the initial owner/creator of the trust.
However, in most instances, some retirement accounts should not be administered through a trust at all.
For example, a person may die before that person’s IRA’s funds are fully disbursed. In that situation, the remaining funds in the IRA can be paid to a beneficiary. The instinct is to name the trust as the beneficiary, like the bank account explained above. However, in these circumstances, it is almost always better to name individual people as the beneficiaries, because individual people beneficiaries can “stretch” the IRA withdrawals out over a longer period of time, thereby usually decreasing the beneficiaries’ taxes.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.