The 10-year rule now nullifies the strategy of naming a trust as your IRA beneficiary if you have young children. Here is why you should rethink this option.
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Mike Bernard, CFP® offers advisory services through KFG Wealth Management, LLC dba Korhorn Financial Group. This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results….(read more)
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When you are considering how to best pass on your assets to your loved ones after you pass away, you may want to consider naming a trust as your IRA beneficiary. This can be a great way to ensure that your assets are managed and distributed in a way that is in line with your wishes.
A trust is a legal entity that is created to hold and manage assets on behalf of a beneficiary. When you name a trust as your IRA beneficiary, you can designate who will receive the assets and when they will receive them. This can be a great way to ensure that your assets are distributed according to your wishes, even after you are gone.
One of the main benefits of naming a trust as your IRA beneficiary is that it allows you to maintain control over how your assets are distributed. You can specify the age at which your beneficiaries will receive the assets, as well as the conditions under which they can receive them. For example, you can stipulate that the assets must be used for education or other specific purposes. This can be a great way to ensure that your assets are used in a manner that is consistent with your wishes.
Another benefit of naming a trust as your IRA beneficiary is that it can help to protect your assets from creditors and other claimants. If a beneficiary is named directly, then creditors may be able to access their assets. However, if the assets are held in a trust, then they are protected from creditors. This can be a great way to ensure that your assets are not misused or taken away from your beneficiaries.
Finally, naming a trust as your IRA beneficiary can help to minimize the amount of taxes that your beneficiaries have to pay. When assets are passed down directly to a beneficiary, they may be subject to income taxes. However, if the assets are held in a trust, then the taxes may be minimized or even eliminated. This can be a great way to ensure that your beneficiaries are able to keep more of their inheritance.
Overall, naming a trust as your IRA beneficiary can be a great way to ensure that your assets are managed and distributed in a way that is in line with your wishes. It can also help to protect your assets from creditors and minimize the amount of taxes that your beneficiaries have to pay. If you are considering how to best pass on your assets to your loved ones after you pass away, then naming a trust as your IRA beneficiary may be a great option.
Great information. A little hard to follow but I get it as I've done a some research prior. I think the bottom line is all taxable accounts, property, etc., need to be in the trust. IRA's and 401K's should not due to the IRS rules.
RLT is the beneficiary – doesn’t the 5 yr rule kick in? Trust triggers the distributions … pays the tax … net deferred dollars are still part of the Trust?
What about taking an existing ROTH IRA that is yours and place it in a trust as an option of legal protection?
Would the trust inherit the account then have to distribute from IRA to brokerage in the 10 years? The successors could be kids and adults the trust is holding funds for. The trust is the legal entity not the kids.