Living Trust Named as Beneficiary
Individual named her husband primary beneficiary of her IRA, and her living trust as contingent beneficiary. Both are over age 70-1/2. They were just involved in an auto accident that killed the husband and left the wife seriously injured. They have two children who are benefciaries of the trust. If the wife survives, should she re-name the living trust as primary beneficiary, or doesn’t it matter? Both she and her husband were named as trustees of the trust, with successor trustees named. If the wife doesn’t survive, then should the IRA be titled in her name as decedent with the living trust as beneficiary? If so, what, if anything would need to be done to assure the children get to stretch RMD’s over their life expectancies?
Permalink Submitted by Alan Spross on Fri, 2010-10-22 20:05
Since the husband as primary beneficiary is deceased, the trust would inherit the IRA when the wife passes. If this is what she wants, she does not need to do anything.
When she passes the trust will be treated as primary beneficiary and the IRA would be retitled in beneficiary form in favor of the trust. What she should do now or as soon as she is able:
1) Determine if there is benefit of leaving the IRA to the trust or just naming the children directly as primary beneficiaries.
2) If the trust will remain, she should review the trust to make sure it meets her requirements and also the trust should be reviewed to be sure it is qualified for look through treatment. If so, the beneficiaries can take RMDs based on the life expectancy of the oldest trust beneficiary. The age of the youngest could not be used.
Permalink Submitted by Sidney Poretsky on Fri, 2010-10-22 20:19
Thank you
Permalink Submitted by Bruce Steiner on Fri, 2010-10-22 21:19
If she wants her IRA to go to her children outright at her death, she should name her children as the beneficiaries.
If she wants her IRA to go to her children in trust rather than outright, she should name trusts for her children as the beneficiaries. The advantage of leaving her IRA (and her other assets) to her children in separate trusts for their benefit rather than outright is that this will keep the children’s inheritances from being included in their estates for estate tax purposes, and will better protect the children’s inheritances against their potential creditors (including spouses and future spouses). However, there is some cost and complexity to administering trusts.
For more on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf.