People nowadays are working longer than their grandparents and great grandparents did before retiring. As such, more time may exist to build a retirement account. Opening a retirement account and funding it may be the easiest part of the process. Choosing a beneficiary for the account in the event of death could seem more difficult. Washington residents may not realize many retirement accounts can be left to trusts.
Leaving a retirement account to a trust provides certain protections for both the account and the beneficiary or beneficiaries of the trust. In a trust, the account may not be reachable by creditors, including spouses, of the beneficiaries. A trust can hold the property for a minor child until distribution of the principal is allowed under the terms of the trust. The life expectancy of the oldest beneficiary of the trust could determine how long the account can continue to grow before a final distribution must be made.
However, this can only happen if the trust qualifies with the IRS as a designated beneficiary. A variety of IRS regulations govern such a qualification, so the trust needs to be drafted in a manner that satisfies the regulations and achieves the estate planning goals of the account holder. If a trust does not qualify with IRS regulations, the retirement account ordinarily has to be distributed within five years of death.
Trusts provide both grantors and beneficiaries with a number of protections and benefits for various kinds of assets. Many Washington, DC residents are already aware of the advantages of using a trust but may not have known of its benefits for passing on a retirement account. Making a beneficiary designation on a retirement account has the potential of being one of the most important decisions a person will make regarding that account. Exploring all of the options available could give the account holder options they had never before considered.
Source: Forbes, How To Leave Your IRA To Those You Love, Deborah L. Jacobs, Jan. 3, 2014