Permalink Submitted by Alan Spross on Mon, 2008-05-05 21:00
Generally, the IRA beneficiary should be an individual or individuals, who are considered as “designated beneficiaries”. A non individual beneficiary such as the estate or a trust increases the risk that RMDs will have to be accelerated and/or taken within 5 years if the owner dies prior to the required beginning date. The beneficiary may also have to deal with a less than cooperative trustee.
There is an exception for a “qualified trust”, ie. a trust that meets all the requirements spelled out in Pub 590, p 39. In those cases, the life expectancy of the oldest trust beneficiary can be used. These are also referred to as see through or look through trusts. Separate account rules do not apply to trust beneficiaries. An estate beneficiary does not qualify for look through treatment for non spouse beneficiaries at all.
A trust should generally only be named as beneficiary if there is a specific reason such as control of the IRA distributions by the trustee, creditor protection including ex spouses, Medicaid protection using a SNT, or part of a plan to reduce estate taxes using the appropriate type of trust. Without one of these reasons, it is not generally productive to name a trust as IRA beneficiary.
Permalink Submitted by Bruce Steiner on Mon, 2008-05-05 21:36
We generally have our clients provide for their children in trust rather than outright. The reasons are to better protect the assets against potential creditors (including spouses), and to keep the assets from being included in the child’s estate for estate tax purposes. These reasons apply to IRAs as well as to other assets.
Permalink Submitted by Alan Spross on Mon, 2008-05-05 21:00
Generally, the IRA beneficiary should be an individual or individuals, who are considered as “designated beneficiaries”. A non individual beneficiary such as the estate or a trust increases the risk that RMDs will have to be accelerated and/or taken within 5 years if the owner dies prior to the required beginning date. The beneficiary may also have to deal with a less than cooperative trustee.
There is an exception for a “qualified trust”, ie. a trust that meets all the requirements spelled out in Pub 590, p 39. In those cases, the life expectancy of the oldest trust beneficiary can be used. These are also referred to as see through or look through trusts. Separate account rules do not apply to trust beneficiaries. An estate beneficiary does not qualify for look through treatment for non spouse beneficiaries at all.
A trust should generally only be named as beneficiary if there is a specific reason such as control of the IRA distributions by the trustee, creditor protection including ex spouses, Medicaid protection using a SNT, or part of a plan to reduce estate taxes using the appropriate type of trust. Without one of these reasons, it is not generally productive to name a trust as IRA beneficiary.
Permalink Submitted by Bruce Steiner on Mon, 2008-05-05 21:36
We generally have our clients provide for their children in trust rather than outright. The reasons are to better protect the assets against potential creditors (including spouses), and to keep the assets from being included in the child’s estate for estate tax purposes. These reasons apply to IRAs as well as to other assets.