I have a client who recently remarried, has 3 college age children, is beginning the work of redrafting his will. He desires, thinking it will be quite easy, to leave his IRA and 401(k) in this way:
1) IRA funds to be split in 3s left to three individual trusts where children have no access to funds until age 35.
2) 401(k) is to be divided among 3 children and new wife. Children’s portion to go to individual trusts having no access until age 35. The balance to be left to his wife. Here is where it gets MESSY. He wants the account balance at date of marriage plus growth on those $$ to go to kids. All salary deferrals and growth on those employee contributions to go to wife. The calculations set up in the Will will be most burdensome and complicated. I have discouraged him from this plan. He wants the dollars to be controlled by a Trust/Trustee. Seeing this, I recommended naming a Trust as the beneficiary whereby it distributes a fixed dollar amount to kids and the balance of 401(k) account direct to wife (basically 100% growth from date of marriage and contributions). [The employer would follow directions of Trust docs] He can amend the fixed $ amount with future codicil. The dollars going to the wife can be rolled over into her own IRA allowing her to delay taking distributions until she reaches 70.5.

I am seeking clarification on my understanding of the operational housekeeping aspects of leaving IRA or 401(k) $$ to a TRUST. The named Trustee is instructed to set up Inherited IRAs for each of the named beneficiaries. The appropriated $$ sums from the IRA and 401(k) would be rolled over (T-t-T) into the established IRA accounts registered in individual names (how is it to be registered?). With regards to the RMDs that have to begin immediately…the Trust retains control over the dollars inside the respective IRAs.. the IRA pays out RMDs to the individuals, but bank ACH to a Trust account?…where the $$ accumulate until age 35? Lastly, my understanding is that when a person leaves qualified 401(k) retirement assets to a conduit Trust that the named beneficiary is not “Trustee for the Trust of….” but simply the named Trust?
Any comments offered up are most appreciated!