Should My Trust Be The Beneficiary Of My Retirement Account? | Learn About Law

Employing a trust is a wonderful technique to avoid probate, and control your estate beyond the grave.  One consideration, prior to drafting a trust, is whether or not to name the trust as a beneficiary for a retirement plan, such as a 401(k), 403(b), IRA, or Roth IRA, and if so, how to properly structure the trust.  Although retirement plans achieve the objective of avoiding probate through title if living beneficiaries are named, there are some benefits to naming a trust as a beneficiary.   

The following bl tv program is brought to you by o’flaherty law please enjoy welcome to learn about law my name is kevin o flaherty from o’flaherty law and today we’re gonna answer the question should my trust be the beneficiary of my retirement account so first let’s talk about trust and how they work a revocable living trust is a really common part of an standard

Normal non wealthy person’s estate plan really when a lot of people come to me and say i need a well often they really need a trust and that’s because what a trust can do that a will can’t do is keep your assets out of probate we want to avoid probate because probate can be expensive it can take a while for your beneficiaries to get access to your assets it can

Also be a big headache for your beneficiaries so we avoid probate by transferring the bulk of our assets to ownership by a trust and then any assets owned by the trust and if there’s a few enough assets outside of the trust when you pass away all of those assets can be handled without a probate case and hopefully a probate case won’t be necessary at all your assets

Can be distributed immediately to your beneficiaries when you pass away if that’s what the trust dictates otherwise they can be the trustee can kind of take over management of those assets until the trust requires them to be distributed so it’s a really good estate planning technique the issue with retirement accounts is that retirement accounts are kind of unique

In that they can avoid probate just by having a direct beneficiary that’s alive at the time that you pass away named as the beneficiary of the account so they don’t have to be in the trust to avoid probate there’s reasons to transfer them to the trust but there’s also a lot of good reasons not to one of the good reasons not to transfer a retirement account to a

Trust and just leave it in the name of direct beneficiaries is the ability to stretch out the required minimum distributions from the trust so beneficiaries that are individuals as opposed to trusts can basically extend the number of years that they’re able to allow the income or the principle of the retirement account to grow tax-free or tax deferred depending on

What type of account it is by stretching out the required minimum distributions the amount that the to take out of the account over the course of their life expectancy so this is a big tax advantage it allows the assets in the account to continue to grow tax-deferred a lot longer than they would if you had the trust be the owner of the account as opposed to the or

The beneficiary of the account as opposed to the individual so for that reason the general rule is that we don’t want to name the trust as the beneficiary of the retirement account if possible we want to name individual beneficiaries that can stretch take advantage of stretching out the required minimum distributions now there are some reasons that it makes sense

To forgo that and to name the trust as the beneficiary one is if you value having long term control over how distributions are made and how the assets are invested over the tax benefit so this might be if you have beneficiaries that you really don’t trust to manage their own assets having the trust named as the beneficiary can can solve that problem but you have

To value that over whatever tax benefit you’d get for naming the individual another reason and probably more common is if you have a complex beneficiary structure so if you have a couple of kids that you want to split the count between after your spouse passes away then it’s really easy just to put that on the beneficiary form for the retirement account but the

Beneficiary form for the retirement account might not be able to accommodate really complex distributions and contingencies so if this happens then this person’s gonna inherit if it doesn’t happen then this other person’s gonna inherit or if you have a bunch of charitable purposes or multiple you know 12 nieces and nephews that you want it to be distributed among

More complex beneficiary structures if you value getting it to the right people over whatever tax benefits the people that get it are gonna receive then you may want to put it in the name of the trust also ease of updating the account if you have a lot of retirement accounts putting it in the name of the trust will allow you to just update one document as opposed

To five or six different accounts if you if your beneficiary designation changes now this is similar to a complex beneficiary structure because generally if you have one or two kids and that’s all you want to happen is now there’s not really a lot of chance that you’re gonna have to change the beneficiary designation if you have a complex beneficiary structure and

Someone falls out of favor with you or something happens where you want to change that then ease of updating that is another reason that you’d want it to be owned by the trust last thing we’ll mention is there is a middle ground there are see-through trusts that if they meet certain legal requirements and they’re complicated and the outside of the scope of what i

Want to talk about here but if it trust meets certain requirements then you can basically see through the trust to the beneficiaries and allow the beneficiaries to still take advantage of stretching out their required minimum distributions so it some this can be a solution that you can work with your attorney on if you still want control over how the assets are

Distributed that the trust provides but you want to take advantage of the tax consequences of having the account and the individuals name as opposed to the trust name there’s a lot of room for error here and it’s not viable in all situations and certainly in complex beneficiary structures it probably won’t be viable but there is a middle ground where you can have

A trust take advantage of these stretch distribution provisions and that’s something that you should certainly talk to your attorney about so if you have any questions you can leave them in the comment section below this post-it learn – about – law comm or below the video on our youtube channel if you found this helpful please subscribe to us on youtube itunes

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Should My Trust Be The Beneficiary Of My Retirement Account? | Learn About Law By Learn About Law