So, Paul, I got this. I name my trust as beneficiary of my retirement accounts instead of my will/estate, and, presto, my beneficiaries can stretch out the time period over which they withdraw my retirement account balances. This may help to avoid higher income taxes and may extend the period over which they earn income in these accounts income tax free. Right?
Maybe.
Maybe?
Complicated federal law governing retirement accounts requires proceeding with care.
Again, the issue will be whether you have named a “designated beneficiary” under federal law. You may be considered to have named a “designated beneficiary” even though your trust is the named beneficiary if:
- the trust is valid under state law (or would be but for the fact that the trust has no assets);
- the trust is currently irrevocable or will become irrevocable upon your death;
- trust beneficiaries are “identifiable” from the trust document;
- required documentation is provided to the plan administrator of your retirement account; and
- all trust beneficiaries are individuals.
Naming a properly constructed trust as beneficiary of your retirement accounts may permit your beneficiaries to extend the payout period for your retirement accounts (with the associated benefits of an extended payout period) and can permit you far more freedom to direct the utilization and administration of these funds on behalf of your beneficiaries through the trust. There can also be certain benefits that may be foregone by not naming individual beneficiaries directly, such as potentially losing the spousal rollover option. However, for many clients a properly constructed trust can be an attractive option as beneficiary of their retirement accounts.
[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts. As a result, the information in this blog post does not represent legal advice. If you are in a situation where you need or desire legal advice, we would be happy to help. Check out our Contact Us page, and feel free to set-up a no-charge initial consultation.]