Beneficiary of Roth and regular IRAs
I would like to know if it is better to list my son as the primary beneficiary on my Roth and regular IRAs or list my trust which he will inherit anyway. How does each way affect any taxes he will have to pay etc. Thank you for any help you can give.
Permalink Submitted by Bruce Steiner on Mon, 2008-03-31 20:11
I don’t know what you mean by “my trust.” But if the amount involved is sufficient to warrant the effort to administer a trust, you might leave it (and any other assets you’re leaving him) to him in a lifetime trust rather than outright, to better protect it against his potential creditors (including spouses), and to keep it out of his estate for estate tax purposes.
Permalink Submitted by Edith L. hayes on Mon, 2008-03-31 22:07
It is a revocable trust if that helps any.
Permalink Submitted by Bruce Steiner on Mon, 2008-03-31 22:38
It doesn’t change the result. You can leave the benefits to him outright, or in a lifetime trust.
If the revocable trust pays out to him outright, it makes no sense to run the IRA through the revocable trust. At best, you get to the same place as if you left the IRA directly to him, but with some additional complexity. At worst, there’s something in the revocable trust that destroys the stretchout.
If the revocable trust remains in further trust for him, then it may not make any difference, but again, to avoid the risk that something in the revocable trust destroys the stretchout, you could leave the IRA to the trust fund for his benefit under the revocable trust.
Is there any special reason for having a revocable trust in this case? Revocable trusts don’t save any taxes, and in most cases (except in a few states, notably California, where probating a Will is said to be difficult) they don’t significantly save administration expenses.
Permalink Submitted by Edith L. hayes on Tue, 2008-04-01 15:53
Thank you for your reply. If I understand you correctly, the best way to go is to simply list my son as the primary beneficiary which would cause the least amount of complications and achieve the same result. Is this correct? As far as having a revocable trust, I live in Florida and I was advised by my then CPA to have it done. Whether it was wise or not is moot at this point. Again thank you.
Permalink Submitted by Bruce Steiner on Tue, 2008-04-01 20:47
The simplest approach is to name your son as beneficiary.
Alternatively, you could name a trust for your son’s benefit as the beneficiary. While more complicated (since in order to be able to stretch the distributions over your son’s life expectancy you’d have to make sure that none of the accumulated IRA benefits could ever go to anyone older than your son), this would better protect it against your son’s potential creditors (including spouses), and would keep it out of your son’s estate for estate tax purposes.
There are reasons for having a revocable trust in Florida in certain cases. For example, Florida won’t let someone act as personal representative (executor) who’s not either a relative or a Florida resident. So if you want, say, your accountant in New York, as personal representative, then you have to (i) have a revocable trust, (ii) have your second choice person act as personal representative, or (iii) have your Will probated in another state. There are other reasons for having a revocable trust in particular cases. But for most people, there’s no need for a revocable trust in Florida. Probating a Will in Florida is usually pretty easy. We probate lots of Wills in Florida, sending them in by mail (registered mail or Fed X so they don’t get lost in the mail) from our office in NYC. We send in the Will with a few forms, a death certificate, and a $255 filing fee.
Your accountant shouldn’t be giving you legal advice. I wouldn’t give someone accounting advice.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL