IRA in a Revocable Living Trust?

Submitted by Jay P. on Fri, 2018-03-23 15:15

I have a married couple (wife and wife) client that reside in Arizona (a community property state) and are getting their Will’s redone along with a Revocable Living Trust. In addition to other assets, the attorney drafting the documents is suggesting to make the Living Trust the contingent beneficiary of both of their IRA’s so the IRA’s go into the trust in the event both spouses passed away together. It has been my understanding that probate is already avoided by means of the beneficiary designation and wouldn’t putting the IRA in the trust also trigger the IRA to be taxable since it is not a human being with a life expectancy as the beneficiary? The attorney claims this is not the case in Arizona. I am not familiar with Arizona probate law. Does anyone have any knowledge or input to know if what the attorney is saying is accurate? Thank you.



Submitted by Bruce Steiner on Fri, 2018-03-23 16:16

  • It may be possible, but to avoid any doubt, why not make the children, or (if each child’s share is sufficient to warrant administering a trust) trusts for the children (which can be under the same trust instrument in which the revocable trust is created) the contingent beneficiaries?
  • Arizona is a Uniform Probate Code state, so the probate procedures should be simple.  Do they need a revocable trust?
  • Bruce Steiner

Submitted by [email protected] on Fri, 2018-03-23 16:38

There are no children, only nieces and nephews who would be contingent beneficiaries. No…I am not convinced they need a revocable trust.Can you expand on your first point a bit?  I agree on making the nieces and nephews the contingent beneficiaires of the IRA…this is what I am trying to explain to the clients.  However, why suggest trusts for the nieces/nephews?  Is this for the purpose of not comimgling IRA and non-IRA assets in one trust?Assuming the living trust has look through provisions, would that preserve the stretch if IRA contingent beneficiaries were the trust?  The trust does not seem to provide any probate protection above what the IRA beneficiary form already does.Much appreciated.

Submitted by Bruce Steiner on Fri, 2018-03-23 16:55

  • It doesn’t matter that they’re nieces and nephews instead of children.
  • Our clients generally provide for their beneficiaries in trust rather than outright to keep the beneficiaries’ inheritances out of their estates for estate tax purposes (which for most people is no longer relevant), and to better protect their inheritances against their creditors and spouses.
  • If they’re going to leave their IRA in trust rather than outright, each beneficiary would have two trusts, identical except for the special provisions needed for trusts that are the beneficiaries of retirement benefits.
  • There’s no purpose to running the IRA through a revocable trust, and there could be a question as to whether it affects the stretch.
  • Given the number of issues raised, it may be worth reviewing the rest of the proposed estate plan.
  • Bruce Steiner

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