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If you're going to set up a revocable living trust, the usual instructions you will get from the attorney is to put all of your assets in the trust. House, brokerage accounts, checking and savings accounts - everything. (Well, everything except IRA and 401k accounts.) The attorney should also prepare new wills that work with the trust. Usually, these are called "pourover" wills, which leave anything that is somehow not in the trust to the trust. Anything significant that is not in the trust will still trigger probate in many states. So with the proper trust in place, why wouldn't you put your financial accounts in the trust name?

But that's all estate work, not taxes.

As to your tax question, I agree with Bill (generally, that's a good thing to do). If it is a grantor trust (and most trusts set up to avoid probate are grantor trusts), the trust is disregarded and you report everything on your personal tax return. At least you do until the first spouse passes. Things may or may not change at that point.

Now for the rant.

I have a personal aversion to TOD accounts. They sound great, but usually reek of DIY estate planning. They sound easy until the TOD is exercised. Say you have a TOD account and name your three children as the beneficiaries. What happens when you die? The account will need to be split into separate accounts for each child. That's how TOD works. So how do you split 100 shares equally between 3 children? If you're not a round lot buyer, how do you split 557 shares equally between 2 children? What if one child wants to liquidate everything and get the cash? Sorry - the account has to be split first, then they can liquidate. Only one child? They still need a new account. The Transfer part of TOD is a transfer of the assets in the account, not a transfer of the account itself.

Or what happens with a TOD account if your health declines and you can no longer manage your own affairs? Now you've got to deal with a POA. But are you competent to execute a POA? Maybe not. If not, someone will have to go to court to get you declared incompetent before they can act on your behalf. In the mean time, how are your bills going to be paid? A durable POA helps, but isn't a cure-all and needs to be signed before you become incompetent. And you better get that POA (durable or not) from each financial organization you deal with because they may not honor the one your attorney writes without a bunch of legal haggling.

This is all much easier with a trust. The trust can (and should) say how a successor trustee takes over. Death is the easy case. The initial trustee (typically you and your spouse) can simply resign and let the successor take over. The trust can (and should) say how to determine that you are incompetent so the successor can take over. That could be the opinion of a doctor or two, or perhaps the majority of beneficiaries, or whatever mechanism you choose. Once the triggers happen, the successor steps in and takes over. The trust continues to exist, so no frozen accounts, no need to immediately split up the account and set up new accounts.

In short, put the brokerage account into the trust unless your attorney is advising against that for some logical reason. (State laws usually matter more than federal laws in these cases, so that's the expertise you need from your attorney.)

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