Naming a Trust vs. Your Spouse as Beneficiary of Your IRA

Naming a Trust vs Yout Spouse as Beneficiary of Your IRA

Deciding whether to name a trust as a primary beneficiary for your IRA over your spouse is not an uncommon concern and is very important to look into when planning your estate. With IRAs, naming a spouse as primary beneficiary and a trust as a contingent beneficiary may be more beneficial than you think (no pun intended). With this option your spouse gains several ways to take over those funds, in ways that fit his or her needs best once you’re gone. A spouse can decide to rollover the inherited assets or disclaim their position within a nine-month period. Spouses also have the freedom to treat the IRA as if it were their own, which might mean deciding to convert the IRA to a Roth down the road. If the passing of a spouse occurs before his/her required beginning date (RBD), the surviving spouse can choose to delay life expectancy payments until the year the IRA holder would have turned 70 ½.

Not married? Even with a non-spouse named beneficiary there may be more payout options available than with a non-individual beneficiary (depending on whether the death of the IRA holder occurred before or after the RBD). Leaving your inheritance primarily to a trust is something you may want to do if your intended beneficiaries are minors, or if you are concerned how your intended beneficiaries will spend the money.

A few other beneficiary tips when opening and maintaining an IRA:

  1. Remember to name both primary and contingent beneficiaries. The primary beneficiary can choose to disclaim assets, passing them along to the contingent(s)
  2. Not naming an IRA beneficiary or forgetting to list a contingent (in the off chance that the sole primary beneficiary and IRA holder both pass) will end up with the account going to probate. The IRA wouldn’t be able to distributable to heirs until the probate process concludes, which can take more than a year.
  3. Remember to reevaluate your designation of beneficiary for your IRA after every major life event.
  4. Keep a copy of your beneficiary designation and/or trust in a secure location and make sure your loved ones know where to find it.