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Assigning beneficiary to accounts?

 
 
dumbstruck
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      02-10-2011, 09:12 AM
What happens after you had designated beneficiaries on your financial
accounts and you die? Especially if assigned to a person, but the
charity case might be nice to hear too.

Roths: Can they file to take possession tax free, probate free?

TradIRA: Can they file to take possession probate free, and then pay
tax or somehow keep it as an IRA?

NonRetirement: Surely this doesn't avoid probate or tax - does it work
the same as naming beneficiary in a will? I just see this option on an
online profile, but unexplained. thanks.

 
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dumbstruck
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      02-10-2011, 09:31 AM
On Feb 9, 11:12*pm, dumbstruck <(E-Mail Removed)> wrote:
> NonRetirement: Surely this doesn't avoid probate or tax - does it work
> the same as naming beneficiary in a will? I just see this option on an
> online profile, but unexplained. *thanks.


Oh, this must be the famous TOD option, but surely it can't bypass the
various state and estate taxations and such? Is this so
straightforward and simple as it appears?

 
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JoeTaxpayer
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      02-10-2011, 01:43 PM
On 2/10/11 4:12 AM, dumbstruck wrote:
> What happens after you had designated beneficiaries on your financial
> accounts and you die? Especially if assigned to a person, but the
> charity case might be nice to hear too.
>
> Roths: Can they file to take possession tax free, probate free?


Beneficiary takes possession, no probate, account if left as
"beneficiary" account, properly titled, can be withdrawn over lifetime
of beneficiary. Spouse has option to transfer to her own Roth with no
RMD requirements. Non-spouse has a set of RMD rules to follow, can't
leave it untouched.

> TradIRA: Can they file to take possession probate free, and then pay
> tax or somehow keep it as an IRA?


Again, if designated beneficiary was listed, same options as Roth,
Spouse can take in own name, non-spouse must start RMDs.

> NonRetirement: Surely this doesn't avoid probate or tax - does it work
> the same as naming beneficiary in a will? I just see this option on an
> online profile, but unexplained. thanks.


There are simple ways to avoid probate within reason, joint ownership
the simplest, but also tricky as stepped up basis issues make come into
play. If high enough worth, trusts can help avoid probate.

 
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HW \Skip\ Weldon
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      02-10-2011, 02:23 PM
On Thu, 10 Feb 2011 07:43:06 CST, JoeTaxpayer
<(E-Mail Removed)> wrote:

>
>> NonRetirement: Surely this doesn't avoid probate or tax - does it work
>> the same as naming beneficiary in a will? I just see this option on an
>> online profile, but unexplained. thanks.

>
>There are simple ways to avoid probate within reason, joint ownership
>the simplest, but also tricky as stepped up basis issues make come into
>play. If high enough worth, trusts can help avoid probate.


Joint ownership (JWROS) exposes asset to joint owner's creditors and
possible family court problems. TOD/POD does neither. But as JT
says, there are so many variables that "general" advice in this area
is tricky.

 
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Igor Chudov
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      02-10-2011, 04:47 PM
On 2011-02-10, JoeTaxpayer <(E-Mail Removed)> wrote:
> There are simple ways to avoid probate within reason, joint ownership
> the simplest, but also tricky as stepped up basis issues make come into
> play. If high enough worth, trusts can help avoid probate.


I am wondering about something. Is "avoiding probate" as important as
some attorneys make it sound? In the case of some simple estate, with
a home and money, say 1.5 mils, would the efforts to avoid probate
really pay off?

i

 
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JoeTaxpayer
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      02-10-2011, 05:20 PM
On 2/10/11 11:47 AM, Igor Chudov wrote:
> I am wondering about something. Is "avoiding probate" as important as
> some attorneys make it sound? In the case of some simple estate, with
> a home and money, say 1.5 mils, would the efforts to avoid probate
> really pay off?


Disclaimer - I have not been involved in a probated estate.

http://law.freeadvice.com/estate_pla...obate_cost.htm

This article suggests it can run as high as 3-7% and 3-6 months or
longer. Tough to put a 'cost' on the delay, as the assets can rise or
fall during that time, but even 3% is pretty bad when talking about cost.
The last trust I consulted on cost about $4000. Even 2% of a $250K
estate would cost $5000 to probate. So, I see value and 'neatness' in
using a trust to help keep one's affairs in order and legal/accounting
issues at a minimum at the end.

 
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BreadWithSpam@fractious.net
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      02-10-2011, 05:20 PM
Igor Chudov <(E-Mail Removed)> writes:

> On 2011-02-10, JoeTaxpayer <(E-Mail Removed)> wrote:


>> There are simple ways to avoid probate within reason, joint ownership
>> the simplest, but also tricky as stepped up basis issues make come into
>> play. If high enough worth, trusts can help avoid probate.

>
> I am wondering about something. Is "avoiding probate" as important as
> some attorneys make it sound? In the case of some simple estate, with
> a home and money, say 1.5 mils, would the efforts to avoid probate
> really pay off?


As usual, the answer is "it depends". It depends first of all on the
state(s) involved. Some states make probate more difficult than others,
and some more expensive than others. Moreover, if someone has real
property in more than one state, then one estate may need to go through
probate in each jurisdiction. If you have real estate in multiple
states, you really don't want to do this.

Finally, there's a matter of timeliness. Probate doesn't happen
overnight. If there are assets which must be managed or liquidated,
it's a lot easier for the beneficiary of a TOD or JWROS owned asset, or
the trustee of a trust to immediately deal with the assets.

And a note to the original poster here (was it "dumbstruck?") -
NONE of this (at least up to and including *revocable* trusts)
avoids estate taxes. When the estate taxes are computed, the
value of the Roth IRA, the traditional IRA, items in a living
trust, etc. etc. all are included (and, depending on who the
beneficiary/inheritor is, then removed - things that go to the
spouse, charity, etc).

One important use for trusts, however, traditionally, has been
to maximize the use of the estate tax exemption. If a spouse
inherits everything, then the exemption which would have been
available to that first spouse do die was wasted and if the
estate was large enough, then when the second spouse died, the
ultimate estate got taxed more than it had really needed to
be taxed. This was hugely important when the exemption was
so much smaller.

In the recently passed estate tax "fix",
in theory, this need for a trust went away through the use of
a newly created "portability" of unused exemptions. So if,
say, a couple has $10million in assets, when the first one
dies and assuming the entirety goes to the surviving spouse,
when the second spouse dies, he or she would get to use both
$5 million exemptions. Without that provision, the first
spouse's $5 million exemption would have been wasted and there
would have been brutal estate taxes on the second spouse's
now $10 million estate.

That all said, I don't know of a single estate/trust attorney
nor financial planner or advisor who has all that much faith
in the portability thing. It only exists for these next two
years and who knows how or if it'll be honored in the future,
nor whether it'll be extended (in case one planned on it and
then goes and lives beyond those next two years). So trusts
for making best use of the exemption are not going away
any time soon. (They are called by many names including
exemption trusts, credit shelter trusts, bypass trusts or
even just "B" trusts).

Anyway, yes, probate can easily be avoided for most assets -
anything with assigned beneficiaries, for example. These
things do *not* avoid estate taxes, though, just probate.
And if you have real estate, especially expensive real
estate or real estate in a different state, at a minimum,
you might consider putting it into a living trust which is
generally quite inexpensive to set up - far cheaper than
probate in many places.



--
Plain Bread alone for e-mail, thanks. The rest gets trashed.

 
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dumbstruck
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      02-11-2011, 12:46 AM
On Feb 10, 7:20*am, (E-Mail Removed) wrote:
> Anyway, yes, probate can easily be avoided for most assets -
> anything with assigned beneficiaries, for example. *These
> things do *not* avoid estate taxes, though, just probate.


If beneficiaries can be assigned for any garden variety financial
account, that sounds very flexible. I wonder if I have this right, so
will pose an example not involving potential special cases of spouses
or retirement accounts.

Person A has a will donating everything (the residual?) to Charity B,
and a $100k brokerage account with beneficiary set to Charity C.

Charity C sees Person A has died and claims title of the brokerage
account by sending in a death certificate. But the account is frozen
until the estate is settled.

The estate is found to have $80k assets besides the brokerage, and
$40k obligations of bills and taxes. So I guess the obligations are
taken out from Charity B's slice of the pie leaving them $40k and
still $100k to Charity C?

Not that I wish to complain or micromanage the proportions - just see
how it may work. This sounds like a great way to adjust things easily
or frequently with less trouble than will adjustments.

 
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JoeTaxpayer
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      02-11-2011, 03:32 AM
On 2/10/11 7:46 PM, dumbstruck wrote:

> Person A has a will donating everything (the residual?) to Charity B,
> and a $100k brokerage account with beneficiary set to Charity C.


Mixing percents and dollars gets dicey unless the dollars are small.
e.g. $10K to each of ten friends, the rest of a million dollar estate
split between wife/kid.

In case of the above (your example) you can choose wording to direct the
net amount after debts are cleared.
So long as the wording is unambiguous there will be no arguing. (ok,
someone will argue, but focus on 'unambiguous.')

 
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bo peep
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      02-11-2011, 07:53 AM
On Feb 10, 5:46*pm, dumbstruck <(E-Mail Removed)> wrote:
> Person A has a will donating everything (the residual?) to Charity B,
> and a $100k brokerage account with beneficiary set to Charity C.
>
> Charity C sees Person A has died and claims title of the brokerage
> account by sending in a death certificate. * But the account is frozen
> until the estate is settled.


That doesn't sound right - if the brokerage account is set to "Pay On
Death" to Charity C, then Charity C will probably be able to collect
the funds the same day that they present the death certificate. There
would be no reason to freeze the acount, as nobody else could have a
claim on it. At least, that was how it worked for me when a relative
died.

 
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