Would you be able to post the following on the IV MLP board for me, please:
As an alternative to a revokable living trust, I am considering registering my brokerage account (which contains significant MLP units) for TOD (transfer on death). Apparently TOD registration avoids probate, just as a revokable trust does, and seems a simpler solution than a trust when the brokerage account is the main asset to be covered.
I have a Transfer on Death (TOD) registration request form from my broker, which essentially just requires me to fill in my account number and the beneficiary information. There is a whole page of disclaimers, including one which says "XYZ securities is not responsible for determining the tax consequences of the decision to register this account as a TOD account".
My main concern is whether there is any special implication of the account TOD registration for the MLP units contained in the account. I believe the account name would be changed from my name (it is an individual account) to something like " , transfer on death to ". I assume that would also propagate to the MLPs so that future K-1s would include the same updated ownership.
So the specific concern is whether that change of ownership information could possibly be treated as a disposition and trigger recapture of deferred taxes, which are considerable. Arb has noted on the IV MLP board that he was able to put his MLPs into a revokable trust with no serious tax consequences, other than receiving two sets of K-1s in the first year, however I don't believe I have seen anyone comment about experience with TOD registration.
Does anyone have definitive knowledge on the tax consequences (now, not on death) of TOD registration on an account containing MLP units, and have I made any incorrect assumptions above?
You can do your own living trust, Lisa, and keep ALL your assets out of probate and the hands of lawyers. Just get the Nolo Press book for California trusts. (They've got one for a basic will also.) It comes with a CD that prints out virtually everything for you. All you do is fill in the blanks. The book is clearly written, cites the more complex situations which require an attorney, and provides all the examples necessary for filling in the blanks for a straightforward living trust. Mine involved a primary beneficiary, secondary beneficiaries, and contingent beneficiaries for each of the secondary beneficiaries plus the same thing for my wife. This was easily done. Yours would seem to be simpler yet. After printing out the trust, you get it notarized, file a copy with your broker, and make sure the executor has a copy and knows where you keep the original. Also, use the will publication and CD for belt-and-suspenders security. It's all a lot simpler than doing a K-1 on TurboTax.
I've compared my trust with those of a friend and a relation who paid couple of grand each to have an attorney do theirs and the trusts are basically the same. Moreover, they had to supply the attorneys the same information that I used to fill in the blanks on the Nolo CD.
I will mention to you that in some states (those that have estate taxes), the estate tax is much higher on TOD than on accounts where the beneficiary is named as a joint owner. (This did not include MLPs, just regular CD accounts). This is from personal experience.