What Your Teller Can’t Tell You

By Lee Phillips

I recently made an IRA transfer from one trustee to another one. I was searching for an extra 0.1 percent return. I might just say that interest rates banks are paying aren’t good. (The real way I feel about it isn’t best put in writing, because it would get this blog rated as adult only.) At any rate, when I got the little girl at the new accounts desk to finally help me, she had no clue. I had to walk her through it step by step. In her words, “We don’t do a lot of IRA transfers.”

The real sticking point came with the naming of the contingent beneficiaries. You are actually the primary beneficiary of your IRA. Your advisor doesn’t know what an IRA is. It is actually a 408 trust. There has to be an IRS approved trustee. (IRA trustees have to pass an IQ test, and if they score above 60 they aren’t qualified to be an IRS approved trustee.) Then there is a beneficiary – You. Can you see how it could be a trust? Trustees, beneficiaries, all the language sounds like a trust, but nobody ever thinks of IRAs as trusts.

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The question often arises as to whether the family company, a corporation, LLC, or limited partnership, should be owned by the parent’s living trust. Owned by the trust probably isn’t a good way of phrasing the statement. The company is owned by whoever owns the stock. (In an LLC there are “membership interests” and in a partnership, there are “partnership interests” – both general partners and limited partners.) The parent’s interests should be owned by their living trust.

The stock or membership interests are an asset that requires a signature to transfer it. Therefore, it will be subject to probate, if it is held in the name of a deceased person. To avoid probate, the ownership interests should be held in the name of a living trust. Thus, when the individual dies the interest or stock is not held in his or her name, but rather in the trust’s name. At the individual’s death, the interest is held by the trust and the trust document appoints another individual to act as the successor trustee. The successor trustee has full power to sell the stock, vote the shares or do whatever they have to in order to make the company continue.

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