Building Legacies that Last Estate Planning and Elder Law

Naming Your Trust the Beneficiary of Your IRA

If you have a trust and would like to make it the beneficiary of your IRA instead of an individual, you can do so. However, there are some important things to consider before doing so.

When people get trusts, one of the first things they are told is that they should put all of their important assets into the trust. They are often told that they can designate their trusts as beneficiaries of their life insurance policies and retirement accounts, and that they should consider doing so.

However, for tax purposes, it is not always a good idea to designate a trust as the beneficiary of your IRA, as Financial Advisor explains in “Is Naming A Trust As Beneficiary Of A Client’s IRA A Good Idea?

The biggest and most important issue is that IRA beneficiaries must take required minimum distributions or face tax consequences. This requirement does not go away when the beneficiary is a trust and not an individual.

Satisfying the requirement with a trust can get technical.

Every beneficiary of the trust must be identifiable and must be an individual. While that might seem easy to accomplish, it is not always the case. Every successive beneficiary must be an identifiable individual. Therefore, the beneficiaries who would automatically receive the trust assets when a previous beneficiary passes away, must be an identifiable individual.

This can be an issue if a residual clause in the trust includes giving assets to a charity, for example.

That is not the only complication with designating a trust as the beneficiary of an IRA. There are other potential problems, which is why you should consult with an estate planning attorney before doing so.

Reference: Financial Advisor (Dec. 2, 2016) “Is Naming A Trust As Beneficiary Of A Client’s IRA A Good Idea?



Locating Old Retirement Accounts

Bigstock-Young-man-holding-a-trash-bin--26453660[1]People with old pensions and retirement accounts often have difficulty locating them. It can be more difficult for estate administrators who need to locate the old accounts. Some help might be on the way.

When pension plans first became a popular benefit in the U.S. it was normal for people to stay employed by the same company throughout almost their entire working life. This held true when employers began switching from traditional pensions to 401(k) accounts. However, that is no longer the case for many working Americans.

People today change employers frequently.

That often means they have old retirement accounts setup at previous places of employment. If someone is not diligent in transferring those accounts when they change jobs, the old accounts can become forgotten or lost. That can make it difficult to later find those accounts when needed, such as when retiring or administering an estate.

This problem was discussed in a Wills, Trusts & Estates Prof Blog article titled "How to Find Your Lost 401(k)."

Currently the U.S. Pension Benefit Guaranty Corp. has a database of traditional pension plans that allows people to find any lost accounts. The agency would like to make that database easier to search and would like to expand it to include defined-contribution pensions and 401(k) accounts.

However, for now, inclusion of 401(k) accounts would be voluntary and there are other companies attempting to corner the market. A bill is in Congress that would make it mandatory to create a nationwide searchable database.

If you have old retirement accounts you cannot locate, you might want to contact your representative in Congress to urge passage of the bill.

Reference: Wills, Trusts & Estates Prof Blog (Sept. 20, 2016) "How to Find Your Lost 401(k)."