Can a Living Trust Be the Beneficiary of an IRA?

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Naming your beneficiaries is a critical step in estate planning. Although there may be tax implications to whomever you designate as your IRA beneficiary, there are ways to reduce the income and estate taxes the recipients of your estate will have to pay. A trust is one of several different options you have when naming the beneficiary of an IRA account.


Following your death, the person or people whom you have named as beneficiaries will receive distributions from your IRA account. Besides a spouse, child, grandchild or other relative or individual, you have the right to name more than one individual as your primary beneficiaries. You may also designate a living trust as the primary or contingent beneficiary. A contingent beneficiary is a person or trust that has the right to receive distributions from an IRA account in the event the primary beneficiary dies. Some people name a living trust as a contingent beneficiary. A living trust ensures that your assets will be divided among your heirs in the way you want. Transferring ownership of your assets to a trust before you die is one way to simplify your will and reduce estate taxes.

Benefits of a Living Trust

Drawing up a revocable living trust is an option that offers a number of benefits. With a living trust, you can continue to manage your assets while you are still alive. Although generally you must transfer property included in the trust from your name into the name of the trust, rather than moving your IRA assets into the trust, name the trust as a beneficiary on the IRA beneficiary designation form. You retain the right to revoke the trust and make amendments to the trust document at any time. Another key advantage of a living trust is that assets held in a trust will not be subject to probate when you die. This can save your beneficiaries money. You may act as trustee of your own trust, but must appoint a trustee to manage the assets of the trust following your death.

Probate vs Non-Probate Assets

Unlike a will, a living trust need not be probated in court. With a living trust, a trustee distributes assets to the beneficiaries you name according to the instructions you have outlined in the trust document. This process is faster, costs less money and is more private than probating a will. Most estates need to hire an attorney to probate the will. On average, the probate process can take from several months to two years before assets are distributed to your heirs. Probate also involves additional expenses such as executor commissions and court costs. It’s also wise not pass on IRA accounts through your will. If your IRA accounts do pass to your estate, these assets must be distributed according to your will, making them subject to probate. By naming a beneficiary on an IRA beneficiary designation form, the IRA becomes a non-probate asset.

Protecting IRA Inheritances

Let the executor of your will and your heirs know where you keep copies of your IRA beneficiary designation forms on file. These are the documents that count when it comes to inheriting an IRA – even more so than what you outline in your will or living trust. You don’t want your IRA going to your estate, because it will cost your heirs more in taxes. Another point to consider is that the beneficiaries you name can get more money by allowing the IRA account to grow tax deferred. Taking the balance as a lump sum can significantly reduce an IRA’s original value. Beneficiaries of inherited IRA accounts who must begin taking required minimum distributions must do so by December 31 of the year following the year of your death. Otherwise, they will have to pay penalties.