Setting up a trust: what to do with CDs?
October 1, 2011 5:39 PM Subscribe
My brother and I are helping our elderly mother set up a trust with the help of a lawyer. She has signed over her assets, house deeds, car title, stocks, bank accounts etc to the trust. She also has a number of CDs that we were led to believe would go into the trust as well. But now they're not?
The CDs have my mother's name and also my name or my brother's name (or another heir) on them. (I don't have a statement with me and I can't remember the exact wording.) My mother did this so it was very clear who would inherit what. We gave the CD account numbers with all the other information to the lawyer who is setting up the trust and now, months later, it is finally happening. At our meeting with him last week, everything was signed and then, as we were getting up to leave, I had a question about the CDs and that's when he said they would not be part of the trust, that the next time they are due to be renewed, my mother should take her name off them and turn them over to the heirs.
Huh, wha? Does this make sense? We had always discussed them as being part of the trust that we would eventually inherit. Aren't the tax implications pretty severe if she turns them over to us now (for instance, mine comes due again in December)? We're talking very low six figures here. Sure I could use some of the money now but not all of it and I certainly don't want to lose a whack of it to the IRS if I don't have to.
I guess in a perfect world, I would like a portion of it in December and the remainder put into a new CD in both our names like before and have that go into the trust. Is this possible/advisable? This is in NH and you are not my lawyer.
The CDs have my mother's name and also my name or my brother's name (or another heir) on them. (I don't have a statement with me and I can't remember the exact wording.) My mother did this so it was very clear who would inherit what. We gave the CD account numbers with all the other information to the lawyer who is setting up the trust and now, months later, it is finally happening. At our meeting with him last week, everything was signed and then, as we were getting up to leave, I had a question about the CDs and that's when he said they would not be part of the trust, that the next time they are due to be renewed, my mother should take her name off them and turn them over to the heirs.
Huh, wha? Does this make sense? We had always discussed them as being part of the trust that we would eventually inherit. Aren't the tax implications pretty severe if she turns them over to us now (for instance, mine comes due again in December)? We're talking very low six figures here. Sure I could use some of the money now but not all of it and I certainly don't want to lose a whack of it to the IRS if I don't have to.
I guess in a perfect world, I would like a portion of it in December and the remainder put into a new CD in both our names like before and have that go into the trust. Is this possible/advisable? This is in NH and you are not my lawyer.
Best answer: I don't know the answer to your question, but it seems to make sense to me that the CDs wouldn't be part of the trust. Because they sort of have an expiration date. Yes, banks usually roll them over if you don't do anything to move the money after they mature, but you may not be getting a favorable interest rate when that happens, and I'm not sure who would be responsible for taking action on them if they matured while in a trust. I think you should take your lawyer's advice and get the money out of the CDs, but you may want an accountant or financial planner to give you advice on what to do with the money afterwards. I would think the simplest solution would be to invest them in something other than CDs and then put that investment vehicle into the trust.
posted by treehorn+bunny at 8:03 PM on October 1, 2011
posted by treehorn+bunny at 8:03 PM on October 1, 2011
Best answer: Anecdotal, but one of my parents has a trust set up for me and the CDs he holds are not included in it. He has me designated as the beneficiary, which bypasses probate. This is likely what your mother should continue to do - have her name on them, with the beneficiary designated. It doesn't exempt you from estate tax, but it does keep the CDs out of probate, which can take time.
IANAL, TINLA, and I am just going by what my dad's estate attorney told me. You should check with yours.
posted by bedhead at 8:07 PM on October 1, 2011
IANAL, TINLA, and I am just going by what my dad's estate attorney told me. You should check with yours.
posted by bedhead at 8:07 PM on October 1, 2011
Best answer: Also NAL, but I'm dealing with some similar issues.
bedhead is basically saying the reason here. The point of the trust is to grant control over certain assets that you wouldn't have otherwise. This can be for probate or other (e.g. Medicare eligibility) purposes. But CDs already have some of these controls, because you can be designated as a beneficiary. Putting them in the trust may, or may not, actually increase your control or options, but if your attorney kept them out of the trust, it was probably not for frivolous reasons. As valkyryn said, be sure you fully discuss those reasons with him.
In general, bypassing probate is a really, really good thing. Do it for whatever you can. But a trust is not the only way to do so. If the trust is for other purposes than just bypassing probate, the advice for handling these assets could be quite different.
State law varies widely and is the primary control of this sort of thing, so you need an attorney's advice in that context. We imaginary internet people have no way of giving you that professional advice.
I would add the slight possibility that if you think it's possible your mother and you have divergent interests here, having your own attorney look over things with a view toward your own risks and rewards could also be a good thing. The lawyer here, even if you've been dealing with him directly, is almost certainly acting with a view toward protecting your mother's interests above all else.
posted by dhartung at 12:53 AM on October 2, 2011
bedhead is basically saying the reason here. The point of the trust is to grant control over certain assets that you wouldn't have otherwise. This can be for probate or other (e.g. Medicare eligibility) purposes. But CDs already have some of these controls, because you can be designated as a beneficiary. Putting them in the trust may, or may not, actually increase your control or options, but if your attorney kept them out of the trust, it was probably not for frivolous reasons. As valkyryn said, be sure you fully discuss those reasons with him.
In general, bypassing probate is a really, really good thing. Do it for whatever you can. But a trust is not the only way to do so. If the trust is for other purposes than just bypassing probate, the advice for handling these assets could be quite different.
State law varies widely and is the primary control of this sort of thing, so you need an attorney's advice in that context. We imaginary internet people have no way of giving you that professional advice.
I would add the slight possibility that if you think it's possible your mother and you have divergent interests here, having your own attorney look over things with a view toward your own risks and rewards could also be a good thing. The lawyer here, even if you've been dealing with him directly, is almost certainly acting with a view toward protecting your mother's interests above all else.
posted by dhartung at 12:53 AM on October 2, 2011
Best answer: None of the answers are responding to this:
>he said they would not be part of the trust, that the next time they are due to be renewed, my mother should take her name off them and turn them over to the heirs
This does not make sense, and I suspect that there is something else going on here. The point of the beneficiary designation is to have them pass automatically when she dies. The CDs would normally be renewed automatically with the same ownership as previously, not distributed during her lifetime.
Either the OP misunderstood the comment, or there is something else going on. He should contact the lawyer again to clear up the confusion. dhartung's idea of a second opinion from OP's own lawyer is also a very good idea.
posted by yclipse at 7:25 AM on October 2, 2011
>he said they would not be part of the trust, that the next time they are due to be renewed, my mother should take her name off them and turn them over to the heirs
This does not make sense, and I suspect that there is something else going on here. The point of the beneficiary designation is to have them pass automatically when she dies. The CDs would normally be renewed automatically with the same ownership as previously, not distributed during her lifetime.
Either the OP misunderstood the comment, or there is something else going on. He should contact the lawyer again to clear up the confusion. dhartung's idea of a second opinion from OP's own lawyer is also a very good idea.
posted by yclipse at 7:25 AM on October 2, 2011
Response by poster: Thank you all for your responses. I will be emailing the lawyer who is setting it up but since a previous question about insurance yielded a rather impenetrable answer (that did not reflect the documents we had given him), I wanted opinions from other members who have gone through this process. He really did say to change the name on the CDs to the beneficiaries and since we were literally walking out the door, we were a bit flummoxed.
posted by TWinbrook8 at 9:35 AM on October 2, 2011
posted by TWinbrook8 at 9:35 AM on October 2, 2011
This thread is closed to new comments.
There is no way anyone on here can give you any information at all about this. I mean, I am a lawyer, and I can't even give general pointers about the way the law usually works in these sorts of situations. We don't know the maturity dates of the CDs, let alone all of the financial details necessary to even begin to guess at the tax implications.
You already have a lawyer. If you have questions about how the trust works and whether these CDs ought to be part of it, you need to ask him. That's why you're paying him.
posted by valkyryn at 6:46 PM on October 1, 2011 [2 favorites]