Testamentary Trust as Beneficiary
If a Testamentary Trust is names as beneficiary on an IRA or Life Insurance policy, are those assets subject to probate?
If a Testamentary Trust is names as beneficiary on an IRA or Life Insurance policy, are those assets subject to probate?
Permalink Submitted by Bruce Steiner on Wed, 2011-08-10 21:09
No. So they should be protected from the decedent’s creditors. And if you satisfy the other requirements you can get a stretchout for the IRA benefits. And it will avoid state inheritance tax in states like NJ where insurance payable to a named beneficiary is exempt. But except for the above it shouldn’t have much practical significance, since you probate the Will, not the assets.
Permalink Submitted by Alan Spross on Wed, 2011-08-10 21:38
Bruce,
But there is time and expense expended to probate the will that created the trust?
And if so, would those probate fees be affected by the value of the assets to pass into the trust?
Permalink Submitted by Bruce Steiner on Thu, 2011-08-11 16:01
Probating the Will is generally not particularly difficult or expensive; and in any event you would probate the Will anyway regardless of whether IRA benefits are payable to a trust under the Will.
Probate fees vary from state to state. In New York, it’s $1,250 (less if the probate assets are under $500,000), with assets payable to a trust under the Will not counting for this purpose. In New Jersey, it’s based on the number of pages in the Will. In Florida, it’s about $400. In some states, it’s a small percentage of the probate estate, so that assets payable to a trust under the Will shouldn’t count for this purpose.
In any event, if having the IRA go in trust rather than outright, it will probably cost just as much to create a separate trust instrument as opposed to creating the trusts for the IRA in the Will.