So, just to be sure we all have this right, when you name a trust as the beneficiary of your IRA, how many beneficiaries are there of the IRA? You got it – ONE – the trust.
By Stephen K Lehnardt
The confusion between IRA beneficiaries, trust beneficiaries, and trusts by way of IRA beneficiaries is a common confusion, but one that may end up costing your estate and heirs. The Slott Report took up the charge recently and offered a definitive answer worth consideration for those hoping to mix their trusts and IRA.
The question (and article): “How Many Beneficiaries Are There With a Trust?”
The Answer? Just one: the trust. Even if there are 20 beneficiaries to the trust there is just the one beneficiary to the IRA - and that is the trust.
The difference comes out in the balance and the math at the end. Naming a trust as beneficiary can seem like or even be an easy way to spread an IRA amongst the heirs you have already chosen to be beneficiaries of the trust. It is not the same thing, however, and that may affect the usefulness of the IRA. After all, IRAs can make for uniquely useful bequests because they can be stretched out over the life of the inheritor, but when the trust is the beneficiary the math changes entirely. How? It is the eldest beneficiary that determines the age.
How and when distributions happen is, further, at the discretion of the trustee rather than the would-be IRA owner. Sometimes this multi-tiered approach can work for a family, but more often than not it is not understood before the papers are signed and only dealt with after the fact.
Always consult your attorney when considering the trust, its assets, and any time you might wish to elect the trust as a beneficiary to this account or the other.
For more information in Liberty, MO and the Kansas City Area about IRAs and effective estate planning and to access free information and tools to organize your estate, visit our elder law and estate planning website.
Reference: The Slott Report (May 30, 2014) “How Many Beneficiaries Are There With a Trust?”