Trust and IRA Beneficiary?

[Raygun99]

I have read multiple opinions regarding IRAs and best practice on beneficiary set ups. Initially the IRAs (Less than 2 Mill) will be in surviving spouse. After that the goal is to ensure the 3 living children (Not their spouses) receive the IRA and deal with them based on prevailing IRS rules. If any of the children are not living then their biological children. (Our Biological Grandchildren.) would receive their portion. We can never manage life from the grave but we are trying to avoid some unanticipated event where a divorced child has the IRA go to a prior spouse ? Texas.. Does putting a Trust the IRA beneficiary ? help or hinder this goal?

 

[all4j]

Since no one has weighed in yet, I'll sound a note of caution. This subject changed with the SECURE act. So, previous experiences may or may not be relevant. There are differences with the types of trust and numerous scenarios for various beneficiaries.

You are likely looking to get some education in advance of meeting with a professional, but be aware that your specific situation may be quite specialized.

 

[Dash man]

We have done that with a Credit Shelter Trust. Find a qualified Estate Attorney, not a general practice kind of guy.

 

[SecondCor521]

It's a complicated topic and you should get good advice from a well-respected estate planning attorney in the relevant states, because a lot of inheritance questions are determined by state law and vary from state to state. Relevant states might include your state of domicile and the states of domicile of your children.

Whether your future ex-DIL or future ex-SIL would get a portion of your IRA is probably mostly determined by whether or not the IRA portion they inherit from you is maintained as separate property or becomes marital property. That, in turn, probably depends on how you list the beneficiary - obviously do not list your future ex-DIL/SIL as beneficiary if you have that concern. It also could depend on what they do with the account after they inherit, and also on state law about what property is of what kind.

Setting up a trust could provide more protection...at a cost to do the legal paperwork to set it up.

I'd probably read up on how Texas law treats inherited assets with respect to whether they are separate property or marital/community property. Roughly speaking, separate property isn't subject to division in a divorce.

You might want to read about "per stirpes" or "per capita", which might address the way you want to handle things with respect to the kids and grandkids. They are common terms.

 

[OldShooter]

As has been said, it is complicated. In our recent estate plan, two grands get tIRA funds via trusts managed by Schwab. When Schwab takes distributions and the money is given to a grand, it is never taxed at the expensive trust level. What this means though is that the trusts must be cleaned out by the end of year ten and the grand will have received all the money. If the trust were to receive the income but not distribute it, then the high trust rate would apply.

A third grand will have a special needs trust intended to last longer than 10 years. For that one, the funding is from a Roth -- so no trust-level tax on distributions and no effective ten year limit.

So in addition to all the complexity already discussed, you will have to consider the taxes. If you are not convinced by now that you need expert help, there is probably nothing more we can do.

 

[ducky911]

My ira at Schwab shows beneficiary our family trust. I think that was the recommendation years ago . Trust goes to my wife and than to my 2 children.

? do I need to look into this?

 

[Dash man]

My ira at Schwab shows beneficiary our family trust. I think that was the recommendation years ago . Trust goes to my wife and than to my 2 children.

? do I need to look into this?

Many things vary by state, so check with your estate attorney. I don’t believe it matters because of some changes in the law, but I’m just a guy on the Internet.

 

[OldShooter]

My ira at Schwab shows beneficiary our family trust. I think that was the recommendation years ago . Trust goes to my wife and than to my 2 children.

? do I need to look into this?

These things need periodic review as laws, families, and assets change. That said, our attorney's current recommendation to us is that the rev trusts are the beneficiaries.