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Making a Trust the Beneficiary of Your IRA

Sunday, July 01, 2018

Many people do not know that making a trust the beneficiary of your IRA or other retirement plan often results in accelerated income taxation. Estates and many trusts and charities must receive the benefits within five years of the owner’s date of death if he or she died before his or her required beginning date ( April 1 of the year after the owner turns 70.5.) If he or she dies after the required beginning date, then the benefit must be paid out over the owner’s life expectancy. These rules typically mean that the beneficiary receives more money in a shorter period of time and thus pays more tax.

The solution to this problem is to designate a "See Through Trust" as beneficiary of your retirement benefits. A "See Through Trust" allows the payout of the retirement benefit over the life expectancy of the beneficiary. In order to qualify as a ‘See Through Trust" the trust must 1) be valid under state law,2) be irrevocable or become irrevocable when the owner dies, 3)the trust beneficiaries must be identified or identifiable and be individuals and 4)the retirement benefit custodian or administrator must have received a copy of the trust document by October 31 of the year after the year of the death of the owner and have an agreement that any changes to that information will be supplemented. 

We can help you with a "See Through Trust." Please contact our office if you have retirement benefits you are leaving to a trust.