When Should A Trust Be The Beneficiary Of A Qualified Retirement Account?

The revocable living trust is an increasingly popular tool in the estate planning attorney’s portfolio.  These trusts are useful for avoiding the cost and hassle of probate, as well as planning for the possibility of guardianship, and protecting family privacy.  Given the desirability of these inherent benefits, it is no surprise that many people wonder whether they should make their revocable living trust the beneficiary of their qualified retirement plan.

Certainly, the easiest and cheapest way to transfer retirement plan assets upon death is to designate an individual as an outright beneficiary.  Furthermore, a direct bequest to an individual should avoid probate as effectively as any revocable living trust.  However, an outright transfer is not without its downfalls.  Some examples of these include: the risk that the individual may decide to take more than the required minimum distributions against the wishes of the decedent; the possibility that someone whom the decedent did not desire to have control of the funds may receive access to them, such as a son-in-law or daughter-in-law; and the possibility of exposing the funds to the beneficiary’s spouse in divorce or the beneficiary’s creditors.

When concerns such as these arise, the best solution may be to name a trust as the beneficiary of a retirement plan, rather than an individual.  Under the IRS Regulations, a trust named as the beneficiary of a retirement plan must meet several legal requirements that a standard revocable living trust usually cannot satisfy.  Given these limitations, it is preferable to establish an “IRA trust” to serve as the retirement plan beneficiary.  An IRA trust is a special purpose trust that offers significant protection and flexibility while allowing the beneficiaries to “stretch” their shares in the IRA over their life expectancies.  More versatile than its name would imply, the IRA trust is an option available under many types of employer provided retirement plans, such as 401(k)s, 403(b)s, and 457 Plans.

The successful establishment of an IRA trust requires an experienced trust attorney who is knowledgeable in matters of general taxation and deferred compensation.  If you are interested in exploring the possibility of utilizing an IRA trust as part of your estate plan, contact an Attorney in Jacksonville who can help you meet your goals today.