The main topic of this broadcast was coordinating three buckets of assets to accomplish the wishes of a client upon his or her passing. To listen to the entire broadcast, click here.
1. Revocable Trust – This is the bucket where assets have been transferred to the trust. The trust will avoid probate with respect to any and all assets that have been properly retitled into the trust prior to death. For income tax purposes, some assets are better off outside of the trust.
2. Will Substitutes – These are assets that pass to a designated beneficiary outside of the trust without the need of a probate or a trust. A common example would be having a "Payable on Death (P.O.D. Account)" designation on a bank account. Another example would be a life insurance policy with a beneficiary designated, or an IRA.
3. Probate Estate – This bucket is the catch all and represents assets that don't have a beneficiary designation and that weren't transferred to the Revocable Trust. This bucket is controlled by the client's Will. If there is no Will, it is controlled by the laws of "intestate succession."
Scenario: The client has a life insurance policy designated to kids of a prior marriage. The client gets married and does a joint revocable trust with his new wife. The Client fails to change the beneficiary designation and the trust provides that "all of my estate and my assets pass to my wife upon my death." The client dies, and now who gets the life insurance? The answer: generally the kids would because of bucket number two trumps all other buckets.