What “wins”: will or beneficiary designation?
I have what I believe to be a simple will that divides my estate equally among 5 beneficiaries, Nephew and Nieces 1 to 4. I also believe my will has terms that a beneficiary must survive me by a period of time in order to receive property. If not, then that individual’s share is to be split equally among those that do survive me.
Also, my will leaves instructions to create a trust for Nephew and Nieces 1 to 4 if any are under 30 years old upon my passing (which will be the case for many years to come). So I expect 5 trusts to be created if I pass anytime soon.
And so, I have checked with my IRA custodian that a beneficiary designation of “trust for Nephew as created by my will” (and similar designations for Nieces 1 to 4) will suffice to pass my ROTH IRA to them after my passing. But I have questions that I’m still trying to address:
1) my intent would be to have “inherited IRAs” created for each beneficiary instead of “cashing them out”. Do I need to do anything further to guarantee this?
2) if a Niece or Nephew don’t survive me, then 4 or fewer trusts will be created. That would be my will. But the beneficiary designation form that the IRA custodian would have on file would indicate that 5 trusts are to be beneficiaries of my IRA, not 4 or fewer. Which wins here, my will or the beneficiary designation form?
Permalink Submitted by Alan Spross on Fri, 2011-08-26 01:01
1) The testamentary trusts must contain provisions allowing the trustee to limit distributions to the degree you specified in the trust. You would need to decide whether to give the trustee discretion over trust distributions to the beneficiary or not.
2) To avoid ambiguity perhaps the IRA beneficiary clause should indicate “testamentary trusts established in equal amounts for a, b, c, d and e should they survive me by x days”. That way, there is no trust for any beneficiary that fails the survival period.
Consult with an estate attorney on this or other variations they may suggest.
Permalink Submitted by Amar Patel on Fri, 2011-08-26 14:48
Hi,
On item 1, I’m not sure I’m asking the question properly so I apologize for seemingly-repetitive questions. But, what I’m trying to get at is “what steps typically happen once an executor contacts a custodian?” I would want my executor and custodian to create multiple beneficiary ROTH IRAs from my 1 ROTH IRA. Once created and in trust, I believe my will/trust instructions give the trustees the flexibility to work with financial advisers as needed to determine what is for the most benefit for the beneficiary (cashing it all out immediately thereafter, not taking a RMD but cashing it out within 5 years, taking a RMD as soon as possible and stretching the distributions for life, some other approach, etc.). But “step 1” is to get the beneficiary ROTH IRAs setup, because that seems to allow for the most options going forward. That is what I want to assure. Is that language to be included in a will, is it “just understood” by most custodians, etc.?
On item 2, how common is it to have 1 “long” beneficiary designation on a form that identifies multiple beneficiaries and/or multiple instructions? The space provided on the form seems to imply that custodian expects a simple designation of some sort. But I’m sensing (purely from online research, mind you) that designations can be as long “as needed” though.
Permalink Submitted by Alan Spross on Fri, 2011-08-26 18:58
1) Custodians do not have a consistent approach to assigning IRAs to trust beneficiaries, and therefore a transfer of the inherited Roth might be required if other methods do not work. Here is an article by Natalie Choate (IRA authority) on how to proceed to get an inherited IRA assigned out of the trust to the beneficiary. Of course, the terms of the trust must allow this as well:
http://www.ataxplan.com/bulletinBoard/ira_providers.cfm
2) Good question. IRA custodians vary in their tolerance of expanded beneficiary wording. Their main objective is to eliminate any ambiguity or litigation that would involve them, and therefore many attempt to indentify potential issues before accepting the requested wording. Sometimes they can be swayed with a letter from an estate attorney explaining the intent of the wording.
Permalink Submitted by Bruce Steiner on Fri, 2011-08-26 21:06
The custodian has the same objective you have. They want to make sure it’s clear who gets what.