Legal Blog

The Weekly Scenario from Steve Shane – 1.20.14

Question:  Can my revocable living trust be named as a beneficiary of my IRA? Answer:  A trust can be named as a beneficiary of an IRA.  However, since a trust is not a human being, and therefore does not have a life expectancy as such, it is important that the trust qualify as a designated beneficiary. If the trust does not qualify as a designated beneficiary, then the trust will have to withdraw the IRA assets over a shorter time frame than if an individual had been named.  Generally speaking, if death occurs before the ‘Required Beginning Date’ (generally age 70 ½), the withdrawal time period is 5 years. After the RBD, the withdrawal period is based on the assumed life expectancy found in the IRS tables. If the trust is structured properly, the trust can qualify as a designated beneficiary and it will be possible to look through the trust and use the life expectancies of the trust beneficiaries for distribution purposes.  This is usually a good result, particularly when young beneficiaries are named on retirement plan beneficiary accounts who have long life expectancies. Problems may arise if the trust names multiple beneficiaries, some of which are not individuals.  If the trust names a charity for example, it may not be considered a designated beneficiary and the result will likely be a shortened payout from the IRA (and less tax deferral for the plan). Comment:  Naming the trust as beneficiary can give a great deal of flexibility to the estate plan, in terms of tax planning and other protections.  However, the ability to preserve the “stretch-out” feature of an IRA (that is the ability to withdraw the IRA assets over a life expectancy) can be the most important benefit of all. Steven E. Shane Principal Offit│Kurman Attorneys At Law 301.575.0313 Washington 410.218.9339 Mobile 301.575.0335 Facsimile Please note the above material discussed is intended to provide only general information. Do not, under any circumstances, solely rely on this information as legal advice. Legal matters are often complicated. For assistance with your specific legal problem or inquiry please contact me directly.