Attorney Andrew Bethel discusses what should be done with investment and retirement accounts, such as brokerage accounts, 401(k)s, and IRAs, when planning an estate. The general rule is to remember the probate threshold, which in California is a gross estate of $184,500 or more. Brokerage accounts should typically be placed in a trust to avoid probate, even if they alone won’t trigger a probate issue. Retirement accounts can have designated beneficiaries who can claim the assets without going through probate, and it is usually recommended to choose individuals as beneficiaries, rather than the trust. However, a trust can be designated as a beneficiary, and this can be advantageous in certain situations, such as when taxes are owed on assets in an IRA or 401(k). Trusts can be amended during the client’s lifetime, and the trust can serve as a safety net if the initial beneficiaries predecease the client.

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*Disclaimer*
Viewing this video does not create the expectation of an Attorney-client relationship. The information from this video is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation….(read more)

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Should I Put My Brokerage, 401(K) or IRA in My Trust?

When it comes to estate planning, many individuals are unsure whether they should include their brokerage accounts, 401(k)s, or individual retirement accounts (IRAs) in their trust. This is a common question that requires careful consideration, as the decision can have significant implications for your loved ones upon your passing.

To address this question properly, it is essential to understand the purpose and benefits of a trust. Simply put, a trust is a legal entity that allows you to transfer and manage your assets for the benefit of your chosen beneficiaries. By creating a trust, you have greater control over the distribution of your assets and can avoid the probate process, ensuring a smoother transition of wealth to your heirs.

So, should you include your brokerage, 401(k), or IRA in your trust? The answer depends on the type of account and your specific goals.

Brokerage accounts are investment accounts that hold various securities, such as stocks, bonds, and mutual funds. Because these accounts do not have beneficiary designations like retirement accounts, they will typically go through the probate process if not included in a trust. Including your brokerage account in a trust can help avoid probate, providing a faster and more efficient transfer of assets to your beneficiaries.

However, it is important to consider potential tax implications when placing your brokerage account in a trust. If your assets have appreciated significantly, they might be subject to capital gains tax upon their sale, potentially reducing the overall value passed on to your beneficiaries. In some cases, an alternate planning strategy, such as a step-up in basis, may be more beneficial. It is crucial to consult with an experienced estate planning attorney or financial advisor to determine the best approach for your specific situation.

On the other hand, retirement accounts, such as 401(k)s and IRAs, have unique characteristics that make their inclusion in a trust more complicated. These accounts already have built-in beneficiary designations, allowing for a direct transfer of assets upon your passing, often bypassing the probate process. By designating beneficiaries on these accounts, you can ensure they are distributed according to your wishes, while avoiding the potential delays and costs associated with probate.

In addition to avoiding probate, retirement accounts also offer certain tax advantages. Generally, distributions from these accounts are subject to income tax, but if they are passed on to a beneficiary directly, they can continue to grow tax-deferred over their lifetime. Placing your retirement accounts in a trust can potentially disrupt this favorable tax treatment, as the required minimum distributions (RMDs) may be accelerated, resulting in a larger tax bill for your beneficiaries.

Ultimately, the decision of whether to include your brokerage, 401(k), or IRA in your trust requires careful consideration of your individual circumstances, goals, and potential tax implications. Consulting with an estate planning attorney or financial advisor can help you navigate the complexity of estate planning and make the best decision for your specific situation.

Bethel Law, an experienced law firm specializing in estate planning, can assist you in making informed decisions regarding your assets and trusts. With their expertise, you can create a comprehensive estate plan that ensures a smooth and efficient transfer of wealth to your loved ones, while minimizing tax consequences.