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Trust vs. Named Persons as Beneficiary on 401k Plan

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#1 jbruggeman


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Posted 02 July 2001 - 09:14 AM

I would like to know the ramifications of changing the beneficiary of my 401k/IRA accounts from named individuals to a trust. I realize this is a broad question, so to narrow it down, I would like an answer based on my specific 401k/IRA beneficiaries and my specific trust. I will now explain these.

I have 401k and IRA accounts with my spouse as the primary beneficiary and four individuals as contingent beneficiaries. Likewise, my wife's 401k and IRA accounts have me as the primary beneficiary and the same four individuals as contingent beneficiaries.

In addition, my spouse and I have a joint trust (revocable and non-by-pass) with the spouse as sole beneficiary. Upon the death of the surviving spouse, the trust proceeds go to the above-mentioned four individuals or if deceased their survivors. It is the intent of my spouse and I that all of our assets be distributed as provided for by the trust. Thus, to get as close to the trust provisions as we can without naming the trust as the beneficiary of our 401k and IRA accounts, we have named our 401k and IRA beneficiaries as described above.

However, so naming our 401k/IRA beneficiaries may not result in the same distribution of assets as provided by the trust. If both my wife are deceased and one or more of the 401k/IRA contingent beneficiaries predeceases us or dies at the same time, then the 401k/IRA beneficiary form provides that the amount of those accounts that would have gone to those beneficiaries would instead be divided equally among the remaining living contingent beneficiaries. However, had the trust been the beneficiary of the 401k/IRA, that amount would have gone to the survivors of those deceased beneficiaries and not been divided equally among the living contingent beneficiaries.

What are ramifications of making the trust the beneficiary or contingent beneficiary of our 401k/IRA accounts? Can the trust be so designated? Does the trust have to be irrevocable at the death of the spouse who has the account in his/her name? Does designating the trust as the 401k/IRA beneficiary affect spousal rollover provisions? Does doing so mean the 401k/IRA must be emptied within five years? What are other undesirable results of making the trust the beneficiary?

#2 Jeff V

Jeff V

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Posted 04 July 2001 - 09:53 PM


I believe if you set up a trust, you can designate the trust as the beneficiary is your spouse agrees. But then, it may be subject to the non-spousal distribution rules for beneficiaries.

As for the irrevocable trust part, that's a decision you'll have to make. Are you sure?

Good luck.