My wife and I are expecting our first child. We would like to name our child-to-be our contingent beneficiary on all of our Roth IRA and 401K accounts. We would like to preserve the stretch, while protecting the child’s inherited assets until they reach a mature age. Our child would be the sole contingent beneficiary of each account. We are the primary beneficiaries of the accounts. Ed Slott’s books discuss the complexities and pitfalls of naming a trust as a beneficiary. The main issue seems to be the IRS requirement that a trust be a ‘look through’ trust. I am wondering if a simple will created with Quicken Willmaker that creates a trust for the child would qualify. We are relatively young and do not have a complex estate. We simply need to name a guardian for our child and would have simple wills otherwise, which is why we currently use WillMaker (which is state specific). I’m fully open to going to an estate planning lawyer if necessary. So far, we don’t have anything complex so it hasn’t been an issue (I don’t think). My intention would be to name the trust created by the Will as the contingent beneficiary, rather than the minor child directly, so that the trustee (a trusted relative) could manage the assets and to avoid issues with naming the child directly. My biggest question would be whether a simple trust created in a will qualifies as a ‘look through’ trust. The individual child’s trust created by WillMaker is a simple trust that names the beneficiary of the trust (the child), the trustee (your trusted relative/friend/fiduciary), and the age at which the trust ends (30 for example). Based on my lay reading of the 4 requirements of a look through trust, I think this would be ok, but I’m no lawyer.

I’m wondering if a simple children’s trust created in a will would qualify and also as an aside if creating a trust is the best way to go. The main reason is to avoid naming the child directly which some institutions don’t like you to do and also so that we could control the child’s access to the money until they get older (no spending sprees at 18 ). The only concern I have with creating and naming a trust is that we may not be able to forsee the problems and complexities we’d create for the trustee later. For example, will the trustee (right now the idea is a trusted relative but no financial/legal expert) be overwhelmed with complexities (tax returns, trust management, etc) that they didn’t need.

The other concern would be if we died when our child was young and RMD’s had to commence, would they be taxed at a high rate (trust rates) because of what we did? I would guess with a Roth it would be non-issue, but for 401k accounts I don’t know. And then what does the trustee do with the RMD’s that had to be taken, dump the proceeds into an UGMA?

Again, if you think its irresponsible not to see an attorney to get a will created and to get guidance I’m open to that suggestion. So far it has seemed like our ‘estate plan’ has been so simple its been unnecessary. The new goal will be naming a guardian and ensuring the largest assets (retirement accounts and term life policies) find their way to the child with the least tax imposed.