Naming beneficiary for retirement accounts

[FL2021]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

[retiredguy123]

It seems to me that your decision would depend a lot on who will be the trustee after you and your spouse pass, and how much you trust them to manage your money efficiently and to distribute it according to your instructions. Note that a trust, unlike a will, is a private document that is not subject to a court's control and oversight.

I would tend to want to name the children as beneficiaries, unless there is a very significant tax benefit to naming the trust. Also, in the case of a Roth, there are no income tax considerations.

[Bill14564]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

What we were told was the difference is in the tax implications. As I understand it:

- if the trust is named then the trust has five years to withdraw the funds from the tax-deferred accounts. So divide the total amount by five and calculate the tax on that based on whatever tax rate a trust has to pay.

- if a person is named then they have ten years to withdraw the funds from the tax-deferred accounts. If multiple people are named then the total amount is allocated per the trust and then divide those numbers by ten and calculate the tax on that based on the individual's tax bracket.

A higher number divided by five and taxed at the trust rate (if different) will likely result in more taxes being paid than if that same number is split among several beneficiaries, divided by ten, and taxed at the individual's rate.

WE WERE ALSO TOLD by our financial services that they would not accept the conditions we placed on the trust for our beneficiaries (payable only after the beneficiary reaches a certain age). Therefore we were given the choice of naming the trust (higher taxes) or naming our beneficiaries with no conditions even if they were still younger than what we would like.

[coralway]

our kids. PERIOD

[retiredguy123]

What we were told was the difference is in the tax implications. As I understand it:

- if the trust is named then the trust has five years to withdraw the funds from the tax-deferred accounts. So divide the total amount by five and calculate the tax on that based on whatever tax rate a trust has to pay.

- if a person is named then they have ten years to withdraw the funds from the tax-deferred accounts. If multiple people are named then the total amount is allocated per the trust and then divide those numbers by ten and calculate the tax on that based on the individual's tax bracket.

A higher number divided by five and taxed at the trust rate (if different) will likely result in more taxes being paid than if that same number is split among several beneficiaries, divided by ten, and taxed at the individual's rate.

WE WERE ALSO TOLD by our financial services that they would not accept the conditions we placed on the trust for our beneficiaries (payable only after the beneficiary reaches a certain age). Therefore we were given the choice of naming the trust (higher taxes) or naming our beneficiaries with no conditions even if they were still younger than what we would like.
You also need to consider the cost to maintain a trust for multiple years. If a lawyer or a financial company is the trustee, they will charge management fees, investment fees, accounting fees, legal fees, tax preparation fees, etc. That is why I would want to name the children as the beneficiaries, if possible, so they can control the money and the fees.

[Babubhat]

Taxable distributions can be backwards. Children working in California or NY could be paying more than 50% tax. May be better to do Roth conversions for the tax differential.

Look into creating a 501c3 if the amounts are worthwhile. All of The wealthy use this planning device. The IRS pays no scrutiny if you execute it properly.

[Inspector Mark]

If the money goes to the trust then that money would need to be used to payoff your debts. If you end up with high medical bills or other debts then the amount of money that would pass to your heirs would be reduced. If you pass the IRA, Roth, life insurance etc accounts directly to your kids or whoever then that money would pass directly to them in full.

[Bill14564]

Taxable distributions can be backwards. Children working in California or NY could be paying more than 50% tax. May be better to do Roth conversions for the tax differential.

Look into creating a 501c3 if the amounts are worthwhile. All of The wealthy use this planning device. The IRS pays no scrutiny if you execute it properly.

Any source for that? I can't find any rates higher than 13% and might be as low as 0%.

Definitely want to consult a tax professional before trying to play games with the IRS.

[rjm1cc]

Unless you do not think the chidden can manage the money I would make them the beneficiary.
The trust would add a lot of problems and expenses. By the way I am using trusts for specific reasons but IRA goes to a beneficiary and not the trust.

[RICH1]

I’ll send you my info … Please spell my name correctly so it doesn’t hold up my checks!!

[krick093]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

Why would you come to this forum for such important advice? Talk to an estate attorney and/or accountant about your personal situation. If you want misguided opinions and misinformation you've come to the right place.

[westernrider75]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

The attorney that drew up our trust had us designate a primary and secondary beneficiary for our investment accounts outside of our trust.

[dewilson58]

Why would you come to this forum for such important advice? Talk to an estate attorney and/or accountant about your personal situation. If you want misguided opinions and misinformation you've come to the right place.

:BigApplause:

[G.R.I.T.S.]

Both our attorney and broker said not to name the trust as beneficiary.

[dewcrews]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

Our trusted attorney advised us to add our children to our retirement accounts as the secondary beneficiary to avoid probate costs and legal fees. Also we added them to our Deeds (one in Michigan and one in Florida) under special State Deeds that allows the spouse complete control until death or otherwise decided.

[ronwinger]

That is exactly what we were advised by an Estate Attorney. To simply everything. We went to the banks and placed our children as beneficiaries... after we both pass. We did the same with our home. We have complete control of everything until we are both gone. I can not think of what the procedure or forms are called. You go the bank set down and they fill out the forms. Our Estate Attorney made out the papers for our home. Had it recorded and done.

[Karmanng]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

REVOCABLE always as if you dont you cant change ANYTHING after its done.....It should always go to the spouse that is left and then whoever after..........my parents had is set for spouse next in line and then it was me.......NO issues No probate.........you better make sure you do your research befroe signing.......also go on Suzie Orman site she is good at explaining things without the legalities of words

[NavyVet]

Look into creating a 501c3 if the amounts are worthwhile. All of The wealthy use this planning device. The IRS pays no scrutiny if you execute it properly.

Just curious: What would be considered a worthwhile amount to consider creating a 501c3?

[SusanStCatherine]

Pay for professional legal and financial advice for your specific situation.

You can't put qualified money in a trust. Out of state real estate is good in a trust. Lots to consider.

[Worldseries27]

I'm available

[Villages Kahuna]

Whatever you do don’t designate joint trustees to settle your estate. Often the holders of your assets will require all but one of your Trustees to resign, so as to have only one person managing the settlement. As hard as it might be to choose one of your children to control the settlement, do it. You will not be doing your children a favor by making them all joint Trustees.

[retiredguy123]

Whatever you do don’t designate joint trustees to settle your estate. Often the holders of your assets will require all but one of your Trustees to resign, so as to have only one person managing the settlement. As hard as it might be to choose one of your children to control the settlement, do it. You will not be doing your children a favor by making them all joint Trustees.
Also, don't set up joint ownership of real estate. Rather, direct that the house be sold and the proceeds be distributed.

I once knew a woman and her brother who had joint ownership (tenants in common) of a house and they argued for years about what to do with it. Finally, he sold his share to a family, and the family moved into it. So, the sister became a joint owner with a family who she didn't know. She could not evict them or sell the house because they owned half interest in the house.

[Jazzman]

For accounts such as 401k, IRA, Roth, etc., we received a mixed advice from our legal and financial services as to whether our children or the Revocable Trust should be named as the secondary beneficiary (after spouse being the primary).

For those of you who have already walked this path, is there a simple answer to this?... or perhaps there are pros & cons to either one? e g., difference in tax implications?

Our attorney who specializes in elder law as well as trusts, etc. and who is also a CPA, informed us to leave any 401k, IRA out of any established trust and name a beneficiary or beneficiaries. The reason is specific to taxes which I won’t get into the weeds about. Our financial advisor ho is also a CPA concurred. The laws change and get very little press

[main12use]

If the money goes to the trust then that money would need to be used to payoff your debts. If you end up with high medical bills or other debts then the amount of money that would pass to your heirs would be reduced. If you pass the IRA, Roth, life insurance etc accounts directly to your kids or whoever then that money would pass directly to them in full.
Also do not forget to add per Stirpes if your child passes and you want their children to get their share! If not their share goes to the other siblings.

[MidWestIA]

I had a trust but in tax training found out there is a max tax rate people can get to but if you leave in a trust it gets there way faster. I dumped my trust