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Naming a trust as Roth IRA beneficiary; Tim Heileman, Rose Law Group estate planning attorney, comments

Posted by   /  September 27, 2016  /  No Comments

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namingBy Small Business Tax Strategies | Business Management Daily

Whom should you name as the beneficiaries when you convert a traditional IRA to a Roth? Usually, it’s the kids or grandkids.

Strategy: Designate a trust as beneficiary instead. This way, you don’t have to worry about teenagers squandering the funds. As beneficiaries of the trust, they’ll gain full access to the funds at a specified age.

A trust arrangement is particularly beneficial for a Roth IRA because you can stretch out payments longer than with a traditional IRA. There’s no requirement to begin lifetime distributions after age 70½. Therefore, if you don’t need the money, you can keep the nest egg intact for your heirs.


Designating a trust as beneficiary of your retirement assets is a great strategy to help provide creditor protection for your beneficiaries while maintaining the tax benefits of your retirement assets. However, I often see clients who have designated their revocable living trust as beneficiary of significant retirement assets, which, depending on how the trust is drafted and the value of the retirement assets, can create significant risks.

Typically, a revocable living trust is used to hold a variety of assets–a majority of which are non-qualified, non-retirement assets. The dispositive provisions of the trust will not specifically mention retirement assets, but in a separate article the trust will provide for exceptional treatment of the retirement assets. This “carve out” approach is not inherently problematic, but as the value of the retirement assets rise, the risk of inappropriate administration by your trustee, or a misapplication of the trust by the IRS, becomes untenable.

Enter the stand-alone retirement plan trust. As the value of retirement assets rise, so does the value of a stand-alone retirement plan trust. Such a trust can specifically address your retirement assets in such a way to maximize the tax benefits for your beneficiaries, maintain creditor protection, while providing the greatest clarity to the IRS and your trustee.

If you are uncertain about the effects of your revocable living trust on your retirement assets, or the result of your current beneficiary designations, please arrange a consultation with a member of our Estate Planning and Asset Protection team.

~ Tim Heileman

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