The initial response from your estate planning attorney or accountant will most likely be “don’t do it.” Naming a trust as a beneficiary of an IRA can be very complicated. If it is not done properly, immediate income tax consequences could result. For example, naming the trust as beneficiary may require a 5-year pay-out of the IRA. Such pay-out to a trust may be taxed at the highest rate of 39.6%. However, there are instances where the best option may be naming the trust as beneficiary. The most common reasons are that the individual beneficiary is a minor or has very poor money management skills. In these situations, it may be best to name your Trust as either a primary or secondary beneficiary. However, the decision should only be made after consulting with an attorney or other tax professional.
Laura M. Trujillo
Disclaimer: This blog is for information purposes only. Legal advice is provided only through a formal, written attorney/client agreement.