Estate planning, the process of arranging for the management and distribution of one’s assets, is an essential and complex task. However, it’s a necessary process as we age, as the decisions made significantly impact one’s personal and financial security in the future. Thorough estate planning involves careful consideration and strategic decisions to protect your hard-earned assets and the well-being of your beneficiaries. While planning, you may utilize tools such as a will or trust fund. One thing you may not have considered is the ability to designate a trust as the beneficiary of your retirement account. If you are interested in this option, it’s crucial to understand the tax consequences of doing so. Please continue reading to learn more and contact a knowledgeable Montgomery County Trust Attorney who can guide you through each step of this process.
Is it Possible to Name a Trust as a Retirement Account Beneficiary?
Firstly, retirement accounts are designed to provide income when you stop working. To ensure your loved ones are taken care of when you pass away, you should consider placing your retirement funds into a trust. In Maryland, it’s possible to name a trust as the beneficiary of a retirement account. After your death, the trust will inherit the account. It will then be maintained as an asset for the benefit of your designated heirs.
What Are the Advantages and Disadvantages?
If you are considering naming a trust a beneficiary, you should weigh the advantages and disadvantages. This option is generally advantageous if your beneficiaries are minors, have a disability, or cannot be trusted with a large sum of money. Another benefit is that it can help avoid future estate tax issues by not atomically becoming a part of your surviving spouse’s estate.
The primary disadvantage of naming a trust as a beneficiary is that the retirement account’s assets will be subjected to minimum distribution payments if you have designated multiple beneficiaries. It’s important to note that these calculations are based on the oldest beneficiary’s life expectancy. If there is only one beneficiary, it won’t matter as much, but if there are several heirs with varying ages, you won’t be able to maximize the deferral potential of the interest of the qualified plan. In addition, for accounts inherited after January 1, 2020, nearly all non-spousal beneficiaries of an IRA are required to take full distribution of all amounts held in the IRA by the end of the tenth year following the account owner’s death.
At JD Katz, we understand what it takes to develop a trust and protect your hard-earned assets. If you are thinking about naming a trust as the beneficiary of a retirement account, please don’t hesitate to enlist the help of our adept legal team. Contact our firm today to safeguard your future and loved ones.