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?”