Updated: December 27, 2022
You should always have a contingency plan, especially concerning your retirement assets. Should anything happen to you, it’s important to ensure that your assets will be properly distributed to your loved ones. Naming a trust as the beneficiary of your IRA is one option for protecting your assets, but it also comes with some significant drawbacks.
Benefits of a Trust as a Beneficiary
Naming anyone as a beneficiary to your IRA already has its benefits; by directly naming a beneficiary, you ensure that these assets avoid probate. This ensures that they’re passed down to the correct people in your life, and keeps all of the sensitive information about these accounts private. Probate can be a long and expensive process, so avoiding this for your loved ones can already be a big advantage.
Specifically naming a trust as your beneficiary, however, will give you a little more control over when and how that money is distributed. Using a trust, you can manage when and how the assets are distributed (to a certain extent). This can be useful in the event that the loved one you intend to receive your assets is still a minor, or cannot manage the money themselves. You are able to dictate when they will receive the money, or how much of it is distributed to them at a time.
Drawbacks of a Trust as a Beneficiary
As of January 1st, 2020, the SECURE act dictates that any non-spousal beneficiary of an IRA must withdraw all funds from the account within 10 years of the original owner’s death. This means that, unfortunately, you do not have complete control over the distributions of your account, even if you name a trust as your beneficiary.
Prior to the SECURE act, it was common for beneficiaries to take the standard required distributions over their entire lifetime, known as a “stretch IRA”. The secure act eliminated this option, except in the cases of minor children, individuals with special needs, and those not more than 10 years younger than the original owner. Thankfully, this means that your spouse or children may be able to take advantage of the stretch IRA plan, but in many cases, this option is no longer available.
Get Help Planning Your Trust
Proper planning is always necessary to ensure that your assets are properly protected, and the first step is working with a trusted estate planning attorney. Monahan Law Firm, PLC, is here to solve all of your estate planning needs. To get started, call us at (623) 385-3190 or through our contact form.