Should IRA’s be included in a trust
I have clients who are creating a revocable living trust and their attorney asked whether their accounts should be retitled and included in the trust. This couple has 2 Roth IRA’s and 2 Traditional IRA’s and one joint account. Each is the beneficiary on the others IRA’s and their 2 children are listed as contingent bene’s on all 4 IRA’s. I am under the impression that only the joint account assets need to be retitled and in the trust and there is no need to do this with the IRA’s. Does that sound correct?
Permalink Submitted by Jose Morales on Thu, 2012-11-29 17:01
IRA ownership is non-transferrable except upon the death of the IRA owner, and then only to the spouse if there is one. The accounts cannot be retitled to be held under the trust or they would be considered distributed to the IRA owner and result in a 1099-R being issued. They can name the trust as the IRA beneficiary rather than the spouse if that is what they really want to do, but they should speak to an estate planner to go over what the consequences of that might be before taking such action.
As an aside, this actually happens all the time at banks due to the lack of IRA knowledge by most front line staff. It took a lot of training to get our file maintenance group, which is responsible for any changes in account vesting, to notify my group when a request for title change came in on an IRA account. In banks where there are no real IRA experts on the payroll, this type of title change probably happens quite frequently.
Permalink Submitted by Alan Spross on Thu, 2012-11-29 17:52
If the purpose of the trust is just to avoid probate, there is no reason to name the trust as either primary or contingent beneficiary on the IRA, since the IRA is not subject to probate unless the estate becomes the beneficiary. There might be other reasons, should the trust be drafted to address a specific estate tax strategy or to split into subtrusts at death so that the beneficiary interests would be protected against their creditors in the future. Just naming a RLT as beneficiary for no particular reason besides the trustee’s control of the IRAs after death is counterproductive in most cases.
Permalink Submitted by Bruce Steiner on Fri, 2012-11-30 18:33
It’s not a good sign when their attorney asks a question like this.
Permalink Submitted by Julie Brangenberg on Fri, 2012-11-30 20:54
Thanks for the replys all. This forum is great.