TRUSTS AS IRA BENEFICIARIES AND NUA: TODAY’S SLOTT REPORT MAILBAG

Thursday, October 29, 2020

By Ian Berger, JD
IRA Analyst
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Question:

Our estate planning attorney prepared trust documents a few years ago and he advised us to name the trust as a beneficiary.  This was done after discussion with him regarding a situation in case our son(s) divorce their wives.  The trust is prepared so that our sons are designated beneficiaries.

I’ve been reading your Slott Report article that advises against naming a trust as IRA beneficiary.  Please let me know how to make sure half of the inherited IRA funds don’t go to our son’s divorced spouse.

Thanks in advance.

Answer:

To start, your existing trust document should be reviewed by your attorney to make sure it still works in light of the SECURE Act changes.

In addition, you should consider whether naming a trust as the beneficiary is really necessary. Without a trust, you could name your son as the only beneficiary of your IRA on an IRA beneficiary designation form This is much less complex and expensive than naming a trust. However, trusts are useful in some circumstances, and protecting assets in divorce can be one of them. You may want to discuss this further with the attorney to gather some more information to determine whether you really need to name a trust in your situation.  

Question:

Thank you for the very timely piece on net unrealized appreciation (NUA)!

One quick question though, just so I am clear:

If someone has a triggering event in 2020, do they need to complete it all by the end of this year, or can they act on it in 2021 or later?  It’s just that IF they start the process in 2020, they need to complete it by 12/31/2020, correct?

John

Answer:

Hi John,

You are correct. To qualify for the NUA tax break, the plan participant must generally empty his account all in the calendar year of the triggering event or all in any calendar year after that.

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