Revocable living trust
Can someone please explain why an attorney would suggest a living trust be named as primary beneficiary of an IRA and a 401(k) plan for a late 30’s married couple with 3 kids ages 6-14? They have no real unique circumstances. He has an income of about $600k and assets of $500k including &200k in home equity. Their attorney stated that if husband and wife were to die at the same time, his retirement money would have to go through her probate. We currently have her listed as primary beneficiary and each child named specifically as contingent for 1/3. What am I missing? I just don’t see the benefit. What are the benefits/pitfalls of what the attorney is trying to do?
Permalink Submitted by Bruce Steiner on Tue, 2007-11-06 22:52
The benefit compared to what they have now is that if a 6-year-old is a beneficiary of the retirement benefits, he/she won’t be able to effectively deal with his/her share. But there are other ways to accomplish this, without the need for a revocable trust.
Permalink Submitted by Robert E Burk on Wed, 2007-11-07 19:06
Is there a downside to having the beneficiary listed as a revocable living trust?
Permalink Submitted by Al Fry on Wed, 2007-11-07 19:33
If Primary bene, spousal continuation would probably be lost. If so RMDs may have to start prematurely.
Permalink Submitted by Bruce Steiner on Wed, 2007-11-07 19:49
Al has noted several potential disadvantages. More important, no one has given any reason for creating a revocable trust in this case, or for naming it as beneficiary.
Is there some reason he doesn’t want to name his wife as the primary beneficiary, and either the credit shelter trust or trusts for his children or his children (with custodians while they are minors) as contingent beneficiaries?
If he earns $600,000 a year and has 3 minor children and modest assets, does he have sufficient life insurance?
A forum such as this is useful for providing general information. But given his income he needs to consult with competent tax/estates counsel.
Permalink Submitted by Robert E Burk on Wed, 2007-11-07 20:05
He has $3.5M in Life insurance. Loves his wife who is competent and has no reason not to name his wife as primary bene, other than suggested by his attorney. Who stated ” if in a common accident, (husband and wife) and he dies immediately and she lives for just a short time ie; comatose, then by naming the trust as primary we can avoid having to probate his retirement assets in a probate of her estate.” I still don’t see probate as an issue in any circumstance with primary and contingent bene’s named.
Permalink Submitted by Alan Spross on Wed, 2007-11-07 21:11
If their state has adopted the Uniform Simultaneous Death Act or variation thereof, each spouse is deemed to have pre deceased the other if death is within 120 hours. If that is still not sufficient, the plan might accept a customized beneficiary designation containing a survival period, perhaps 90 or 120 days. The result of either is that the contingent beneficiary would be considered the primary beneficiary.
Common disaster deaths are much more rare than most people expect.
Permalink Submitted by Bruce Steiner on Thu, 2007-11-08 23:29
You probate the Will, not the assets. Probating a Will is generally not a major effort.
You are correct that if he leaves the IRA to her and she survives him but not for long enough to do a rollover, that it will become an asset of her estate. But:
1. It’s far more likely that, if she survives him, she will survive him for long enough to do a rollover. Why not plan for the more likely event?
2. If she survives him but not for long enough to do a rollover, her executors (with court approval, if necessary, depending upon state law) can disclaim the IRA, so that it can go to trusts for the children (if trusts for the children are the contingent beneficiaries).
As previously noted, given the facts presented, he should consult with competent tax/estates counsel. A forum such as this is not a substitute for that.