Trust as beneficiary
We have a client who is fairly adamant about naming a trust as the beneficiary of his IRA, rather than just naming his wife as sole bene, children as contingent. After both secure and secure 2.0, can you share top reasons pro and/or con on this topic? Today the client is pre RBD.
Permalink Submitted by Carlos Lopez on Tue, 2023-02-14 16:39
It’s important to understand there are no additional tax benefits to naming a trust as beneficiary of an IRA. In many cases it can actually cause problems. But the reasons a client would want to name are trust are for primarily controlling the assets after death, especially if there is concern that the kids may divorce or be subject to a creditor lawsuit, or if the child is a spendthrift. I don’t know the reasons why he still wouldn’t want to name his spouse as primary, this should almost always be the case as spousal beneficiaries simply have more options than any non-spouse, including a trust. A spouse can always disclaim the IRA (in part or in whole) which the proceeds would then bypass her to the trust for the benefit of the kids anyway. So unless there is a specific reason to not name the spouse as primary, she should be named as primary and trust as contingent. All of this said, you have to be careful with the language in the trust. It must have clear see-through language and be set up as an accumlation trust (not conduit) after his death to accomodate the SECURE ACT. Work with an experienced team of professionals to accomplish this.