Your surviving spouse may be considered to be the default beneficiary of your retirement account. However, you may name any other individual or entity of your preference, whether it be your child or grandchild, your favorite charity or other organization, or, namely, your established trust. With that being said, follow along to find out why you might want to make your trust your retirement account beneficiary and how a proficient Putnam County trusts attorney at the Law Office of Andres D. GIl, PLLC can help you understand the implications of doing so.
Under what circumstances is it best to make my trust my retirement account beneficiary?
You may consider naming your trust as your retirement account beneficiary, and then your loved one as your trust beneficiary. Simply put, this method may allow you to maintain more control over how and when these funds may be distributed to your loved one.
Specifically, upon your unfortunate passing, your surviving spouse or other named beneficiary may receive your retirement account balance as a lump sum payment. However, if you designate your trust instead, your appointed trustee may manage these funds for the time being. Then, they may administer these funds to your named beneficiary at the time, in increments, and in the form you have explicitly instructed in the terms and conditions of your trust document.
Therefore, it may be best to have your trust as your retirement account beneficiary if you anticipate that your loved one will still be of a minor age when you, sadly, pass on. Or, if your loved one has a history of financial irresponsibility and would be better served by the guiding hand of a trustee. Lastly, if your loved one has special needs and would be better served with a special needs trust.
What are the possibly negative implications of making this beneficiary designation?
You must face the fact that any beneficiary designation for your retirement account comes with its pros and cons, even with selecting your trust. Specifically, possibly negative implications arise if you make your trust the beneficiary of your individual retirement account (IRA) rather than your surviving spouse. Then, if you subsequently name multiple beneficiaries to your trust.
This is because your IRA may be subject to required minimum distribution rules. Here, annual distributions may be made over a fixed period. A beneficiary’s life expectancy at the time of your unfortunate death may be used to determine this fixed period. But this may not be good if you have multiple beneficiaries with a wide range of life expectancies. For example, if you have your surviving parent and minor grandchild as your two beneficiaries. With this, your minor grandchild may not be able to spread their distributions over a long period.
At the end of the day, if you have any lingering doubts about your estate planning decisions, a talented Putnam County estate planning attorney can help relieve them. So whenever you are ready to start, please reach out to the Law Office of Andres D. Gil, PLLC.