Retirement planning is a challenge at best, painful at worst.
Unfortunately. without great planning there are more ways to fail than there are ways to succeed. Whats worse is planning for death is a part of planning during life.
Your beneficiaries don’t have it much easier. They’ll have plenty of questions, worries, and concerns on top of dealing with the loss of you. If you have a trust it complicates things (while making them easier in so many ways) even more.
Know your IRA rules
IRA beneficiary rules are quite different for a trust than they are for a spouse or non-spouse beneficiary. The MOST important thing you can do is make sure you – and your beneficiaries – are prepared and ready for this eventuality.
When a trust is the named beneficiary, there is one beneficiary! It IS NOT your son/daughter, relative, etc. It’s the TRUST.
Just because your kids or relatives are the beneficiary of the trust it does not mean they are beneficiaries of your IRA. They can’t move it into an inherited IRA for their benefit, and they can’t ask the custodian to make distributions directly to them.
The trust is the beneficiary, not the trust beneficiaries. Only the trustee of the trust can make decisions regarding the IRA. There is only one IRA beneficiary – the trust – no matter how many beneficiaries there may be in the trust.
What does your trust actually require?
The trust document rules everything. When a trust is the beneficiary of an IRA, the trustee of the trust must give a copy of the trust or a list of the trust beneficiaries and their entitlements to the IRA custodian by October 31st of the year after the account owner’s death.
If this isn’t done, the trust cannot be a see-through trust. In this situation, the non-designated beneficiary distribution rules will apply.
By law, you can only move the inherited funds as a direct transfer. Inherited IRA funds must be moved via a trustee-to-trustee transfer; NOT a 60-day rollover. The beneficiary must never have use or control of the IRA funds during the transfer.
Trust as an IRA Beneficiary Summary
There’s a few of the nuances of naming a trust as a beneficiary. It’s not easy!
The single most important thing is to make sure that your heirs talk to an expert! Not just any broker or “financial advisor”, but a legitimate expert in IRA and beneficiary planning.
If they talk to an expert BEFORE they make any changes your IRA legacy will last generations upon generations!