Should You Name Your Trust as A Retirement Account Beneficiary?

You have the right to choose what who will receive your assets when you pass away, including your retirement account. The support of a qualified estate planning attorney can help you to review any and all assets in your current estate as well as those outside of the estate, and to determine how these should be best distributed in the future.

You may be wondering if it makes sense to name a trust as the beneficiary of your retirement account. There are advantages and disadvantages to this approach, and of course, it should always be aligned with your individual goals. Qualified retirement savings accounts are often a substantial nest egg and can have a lot of money inside if you pass away before being able to use them.

Most investors are given the opportunity to name primary as well as contingent beneficiaries. Naming a trust as the beneficiary has some benefits, such as if your beneficiaries have a disability, cannot be trusted with a significant amount of money, or if they are minors. There are cons, however, to naming a trust as the beneficiary of your retirement account.

The biggest of these is that assets inside a retirement plan are subject to required minimum distribution payouts. This is calculated based on the oldest beneficiary’s life expectancy. There’s one other thing to keep in mind as well for IRAs. Most non-spousal beneficiaries of an individual retirement account have to take full distribution of all funds before the end of the 10th calendar year following the year of the IRA owner’s death. This could generate tax consequences or limit the amount that is given to the beneficiary.

Naming individual beneficiaries allows each beneficiary instead to take an RMD based on their own life expectancy, which means they could stretch out an IRA’s earnings for longer periods of time. Bear in mind, however, that the non-spousal beneficiary changes mentioned above as part of the Secure Act apply to accounts and trusts inherited after January 1, 2020. Meet with an experienced estate planning attorney to discuss your options.

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