Trust Help?

[GLGACCT]

Client Mother lives in Florida, Client Son lives in NJ.  Daughter lives in Florida and is not a client.  Mother and Son created will and revocable trust to place her house in Florida (has mortgage) per daughter's wishes. Client son just read me the will and some of the trust documents.  Both being dropped off today.  Will states everything should go to the Trust.  Son's NJ lawyer is questioning whether a NJ rental property (has mortgage) should be placed in the trust as well as the small bank accounts and small IRAs.  All accounts have beneficiaries and or TOD/POD designations.   House in Florida is in the Trust already.   Do not know if the lawyer requested an EIN.  Son will get NJ property and one Ira and Bank account.  Daughter will get Florida house and one Ira and Bank Account.  Son and NJ lawyer are questioning funding the remaining items to the Trust including the NJ rental property. The daughter was concerned with the Florida probate rules. Any ideas on how to address?

 

[BulldogTom]

When you say son will get NJ home, is that per the will or the trust document?   If the will states he gets the NJ home, then it goes through probate, but you said the will states everything goes to the trust?   IF the NJ home is not in the trust, then the will controls and NJ home moves to the trust after going through probate, then gets titled to the trust and then distributed to the son as a beneficiary of the trust (if that is the way the trust is written).   Seems very messy.   

I think the will is in the way as it relates to titled property.   All the titled property (real estate) should go to the trust and is distributed per the terms of the trust after death of the grantor.   The will can move the personal items of the decedent into the trust normally without probate unless there is a large amount of value associated with that personal property (Heirloom jewelry, expensive silver, artwork, etc) and if so these items should be listed as assets of the trust.

IRAs should never, IMHO, be transferred to a trust.   They should properly designate the beneficiary and move by operation of law to the designated beneficiary on death.   

Same with bank accounts and brokerage accounts that are supposed to go to an individual.    TOD is a better option.   If the trust is supposed to get the cash accounts, then title the account to the trust.

Others may disagree, this is how I would advise the client based on your posted scenario.

Tom
Longview, TX

[GLGACCT]

Tom, the will states everything goes to revocable living trust through a rest, residual and remainder clause.  Note the NJ property is actual a rental property.  The trust document states son gets NJ Rental Property and daughter gets Florida home.

The son and NJ lawyer were skeptical about titling the NJ Rental Property in the Trust as NJ is very easy to probate.  Any concerns with or without retitling the property to the Trust?

No real value associated with personal property.

Agree with the IRAs and bank accounts, as most are joint accounts with the son paying all of the mother's bills, it was suggested to move one account into the Trust.  

Thank you for your response.

 

 

[BulldogTom]

Why are you concerned about the rental use of the property?   I don't think it is an issue.   The trust is revocable, so the income while the grantor is alive will still go on Sch E on her personal return.   When the grantor passes, the son will still get stepped up basis.   He can then choose to keep it a rental or sell it as investment property.

It seems to me that taking the property through probate is an unnecessary step (no matter how easy it is in the state) when you can just title it now in the trust and not have to take that step after the grantor passes.   What am I missing that you are concerned about?   Is there something else I should be considering?

Tom
Longview, TX

[GLGACCT]

Tom,  your thinking is consistent with mine.  The way the client's son was explaining it to me, the NJ lawyer was having an issue with putting it on her personal return Sch E.   I wanted to check to see if I was missing something.  In hindsight, the son may have misunderstood the difference between revocable and irrevocable.  Thank you for your response.

 

 

[Sara EA]

This is a legal argument, not the bailiwick of the tax professional.  Don't go there.  While we aim to please and serve our clients, sometimes they ask too much of us.

[BulldogTom]

10 hours ago, GLGACCT said:

The way the client's son was explaining it to me, the NJ lawyer was having an issue with putting it on her personal return Sch E.  

The client's lawyer should stick to writing wills and trusts.

9 hours ago, Sara EA said:

This is a legal argument, not the bailiwick of the tax professional. 

Disagree...this is just as much a tax issue as choice of entity is to a business.   How to make the most cost effective transfer of wealth considering the circumstance and wishes of the client is something we can and should do.  

Tom
Longview, TX