IRA Contingent Beneficiary as Trust

[Katsmeow]

We are redoing our wills since we moved. Most of our estate is not that complicated. Home will go to the surviving spouse on death. Banks account are joint and payable to other spouse on death. So the only thing that really passes through the will is personal property. Of course, if both of us die there are contingent beneficiaries and then the house would go to contingent beneficiaries. We don't really keep a lot of cash and our personal property is not that valuable so it is mostly the equity in the house. We do have a number of contingent beneficiaries. All are currently adults but if one of them died then their descendants might include minors. So there will likely be a minor trust in case there are any at the time.

But, then there are our IRAs. I am wondering if for the contingent beneficiaries if there would be a benefit to setting up an IRA as the contingent beneficiary. For most of the contingent beneficiaries I have no issue with them having immediate control of their share. However, there is at least one contingent beneficiary that I would prefer that they not receive immediate control and would want control of their share to be received over a period of a few years. Does have a trust as beneficiary potentially allow for this?

Another issue that I am not sure if there is a solution for. Let's say I die and have my IRA set with my husband as beneficiary. I have some contingent beneficiaries. DH is alive though and inherits. DH forgets to set up new beneficiaries for my IRA (which is now his inherited IRA) or unfortunately lacks the capacity to do so at that time. Then when he dies the IRAs are distributed according to the default. Which isn't what we wanted. Is there any way to avoid that?

(We have an attorney and I am going to discuss these issues but just trying to gather some info. We do not have a revocable trust for our assets and would prefer not to have one given that it really doesn't look like we need one).

 

[Dash man]

We do have Inheritance IRA Trusts set up for our boys with all the contingencies in the trust. The purpose of the Trust was not for the contingencies though. After funds are withdrawn from the IRAs and taxes paid if needed, the funds remain in the trusts with protection from creditors and judgements. Basically, the funds will be protected as if still in an ERISA protected account. The ten year RMD requirement stands for the IRAs, but the funds are protected.

 

[Sunset]

I don't see moving as a reason to re-do a Will, surely all States accept a Will from another State, or lots of folks will be surprised.

The other reasons make sense.

 

[Katsmeow]

As I understand it states do usually accept wills from other states but I do not believe it is necessarily universal. However, our wills are a number of years old and there are changes in how we want to leave our assets in terms of contingent beneficiaries. So we need new wills. We also need to do POAs and and health care POAs and advance directive which meet the requirements of our current state.

Dash Man - Thanks for the info about Inheritance IRA trusts and the creditor protection. That is good to know.

 

[all4j]

While your existing will might well be “accepted”, it doesn’t mean it shouldn’t be reviewed & likely re-written. Laws have changed, perhaps your wishes have, & different states may have different options available to meet your wishes. Details are many & really matter. There won’t be a singular right approach as there are no perfect solutions. You’ll need to make trade-offs & a good lawyer should help navigate that process.

The custodian of your IRAs probably has a web page that explains different options for a surviving spouse. It would perhaps serve you well to understand that before being on the clock with your lawyer. Spouses have different rules than non-spouse individuals or trusts. If you just look at info for “inherited IRAs”, you’ll probably get different info from how a spouse is treated. There are pros & cons to using trusts. The matter of not “having the capacity” does not necessarily go away with a trust. A trust will require a trustee, but does have the possibility of a co-trustee. Being a trustee is not easier than updating IRA beneficiaries. Having a good dpoa &/or co-trustee may be enough. The roles of executor (for settling the estate), power of attorney (financial, health, et al), and (possibly) trustee need to be understood & staffed. Clear communication will go a long way

 

[yclipse]

> setting up an IRA as the contingent beneficiary

Your question is, unfortunately, reversed. No will or trust can add funds to an IRA. It appears that you are considering naming a trust as the contingent beneficiary of an IRA.

That can be done, for the reasons you identify and for others. But it takes certain steps to "qualify" a trust to be a beneficiary of an IRA. It goes beyond the expertise of many estate planning attorneys.

 

[KarenF]

I don't see moving as a reason to re-do a Will, surely all States accept a Will from another State, or lots of folks will be surprised.

The other reasons make sense.

You would be surprised! State laws on both wills and trusts vary widely. When we moved we had to update our wills but not our trusts. You do have to check.

 

[Out of Steam]

You would be surprised! State laws on both wills and trusts vary widely. When we moved we had to update our wills but not our trusts. You do have to check.

My understanding is that it is routine to have to modify wills when moving from state to state in the US. We did it about a year after our last move.

 

[JBTX]

We are redoing our wills since we moved. Most of our estate is not that complicated. Home will go to the surviving spouse on death. Banks account are joint and payable to other spouse on death. So the only thing that really passes through the will is personal property. Of course, if both of us die there are contingent beneficiaries and then the house would go to contingent beneficiaries. We don't really keep a lot of cash and our personal property is not that valuable so it is mostly the equity in the house. We do have a number of contingent beneficiaries. All are currently adults but if one of them died then their descendants might include minors. So there will likely be a minor trust in case there are any at the time.

But, then there are our IRAs. I am wondering if for the contingent beneficiaries if there would be a benefit to setting up an IRA as the contingent beneficiary. For most of the contingent beneficiaries I have no issue with them having immediate control of their share. However, there is at least one contingent beneficiary that I would prefer that they not receive immediate control and would want control of their share to be received over a period of a few years. Does have a trust as beneficiary potentially allow for this?

You can have IRAs in trust. It has to be set up as a see through trust in order to maintain the same stretch as the beneficiary. I’d make sure to ask the attorney if they have experience setting IRA trusts and specifically accumulation trusts (which are generally superior to conduit trusts).

Another issue that I am not sure if there is a solution for. Let's say I die and have my IRA set with my husband as beneficiary. I have some contingent beneficiaries. DH is alive though and inherits. DH forgets to set up new beneficiaries for my IRA (which is now his inherited IRA) or unfortunately lacks the capacity to do so at that time. Then when he dies the IRAs are distributed according to the default. Which isn't what we wanted. Is there any way to avoid that?

I was kind of concerned with this hypothetical with my parents as they are both aging and declining. In our case, I was able to get a durable power of attorney, including the ability to modify beneficiaries for them, which is a special power that is delineated in POAs and requires separate initials. Obviously the beneficiary must have extensive trust in the DPOA to designate such power.

(We have an attorney and I am going to discuss these issues but just trying to gather some info. We do not have a revocable trust for our assets and would prefer not to have one given that it really doesn't look like we need one).