IRA/Living Trust/Beneficiaries

[Guest tarheel]

My late wife and I did a living trust with the objective of passing her assets to her kids and my assets to my kids.

What are the pros and cons of naming the trust as beneficiary for my IRA, versus naming my kids individually as beneficiaries?

I will appreciate any help anyone can provide.

Thanks.

[BPickerCPA]

The pros and cons can differ from situation to situation. You need to discuss this with a competent pro.

[mbozek]

One obvious difference is that if the trust is the IRA beneficary, the trust can provide restrictions as to when and how much can be paid to the kids, e.g, payments can be made from the trust to the children in the discretion of an independent trustee. The trustee would also invest the funds in the trust. If the kids are named as benficaries of the IRA, then each of them owns their share and can withdraw the entire account at any time or invest it in imprudent investments. An independent trustee would have to paid for services from assets of the trust. You need to retain counsel to discuss the options.

[Lame Duck]

One consideration is that distributions made directly to your children as beneficiaries may be made over life expectancy. This is also possible if the trust is the beneficiary, but there are very specific rules and guidelines that must be met in order for this to be available. If they are not met, distribution of the entire amount to the trust would have to be made not later than the December 31st of the year that contains the fifth anniversary of your date of death. Due to the subatantial advantages of continued tax-deferred growth in the IRA, payments over life expectancy will generally result in a larger sum being passed to the beneficiaries.