Beneficiary of IRA
My client’s mother is alive but not expected to live long. The client asked if the beneficiary of his mother’s IRA should be the family trust or the client and his 3 siblings. Has Ed Slott written any pros and cons newsletter articles I could read to see which approach is best? I’ve been a long-time newslettter subscriber and can go back into old copies if anyone has recommendations.
Permalink Submitted by Alan - IRA critic on Tue, 2025-06-10 17:20
I can’t recall any side by side comparison, but the default is to not name the trust unless there are specific benefits of a trust.
Such benefits include control of distributions to a beneficiary who is a spendthrift or has drug or related issues, protection against creditors including spouses, and special needs beneficiaries to protect their govt benefits such as Medicaid.
The downside of a trust is that a 1041 must be filed each year, and any income accumulated in the trust will be taxed at the much higher tax rates of a trust/estate. There will also be fees for creating the trust and paying any professional trustees.
So basically, the benefit is control of distributions are creditor protection, and the downside is expenses, taxes, and lack of inherited IRA control for each beneficiary.
Of course, with 4 beneficiaries, it is very possible that one or some of them warrant a trust beneficiary while the others do not need the benefits. In that case, the IRAs could be split and the trust only named on one of them.
Finally, the size of the IRA matters. For modest amounts the costs and hassles of a trust are not practical.