Trusts as Retirement Account Beneficiaries

Preparing a comprehensive estate planning strategy is an important step in making sure the assets you have worked hard to build are secure and can be distributed to heirs according to your wishes. An experienced estate planning attorney can help you develop an estate planning portfolio that meets all of your needs. A recent article from reminds us that one important aspect of estate planning includes retirement accounts such as traditional IRAs, Roth IRAs, or a tax-qualified employer-sponsored retirement plan.

When these plans are left to individual beneficiaries, the person inheriting the qualifying account is able to open their own account and transfer the money they have inherited into it. In turn, they can appoint an individual to be the beneficiary of their account. This allows them to stretch out minimum required distributions for a longer period of time instead of simply taking the lump sum of money in the account. However, when qualifying retirement accounts are left to a trust then there are additional

Trusts and Retirement Accounts

One important thing to remember when it comes to retirement accounts and trusts is when a trust is named as the beneficiary for a qualified retirement account, the law requires that all individuals that might be beneficiaries of the trust and stand to inherit any of the funds from the qualified retirement account must be identifiable. Additional beneficiaries for retirement account funds cannot be added after the trust has inherited the qualified retirement account. Additionally, the individual whose age and life expectancy will be used to determine the required minimum distributions of the retirement account through the trust to beneficiaries must be an individual – not another trust or other estate-related entity.

Many trusts are set up in a way that enables them to name a successor trust for the assets that end up in the original trust. When this is the case for a trust that you have named as beneficiary for a qualified retirement account, you can create terms within the original trust to distribute required minimum distributions to beneficiaries upon receipt. This allows the trust to act as an intermediary for the retirement account distributions, but the beneficiary will receive distributions just as if he or she was receiving them directly from the qualified retirement account. These arrangements can be structured to allow the individual beneficiary to retain the power to appoint property and assets within the trust, which means that retirement account distributions may ultimately be able to be distributed to individuals born after the retirement account was inherited by the trust.

You can also structure a trust that has been designated as a recipient of a qualified retirement account to retain all distributions from the account to the trust until the beneficiary of that trust reaches a certain age. It is important to make sure that the terms of the trust meet requirements for minimum required distributions after the beneficiary has attained the age in which the trust will begin to distribute distributions it has retained. Here again, if the individual who whose age and life expectancy will be used to determine the required minimum distributions has appointed a beneficiary to his or her share in these distributions, all of those beneficiaries must be identifiable.

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