Articles Tagged with IRA

Retirement plans, including IRAs, 401Ks, 403Bs, and 457As, are not controlled by common estate planning documents such as wills and revocable living trusts. They transfer to heirs by a beneficiary designation. So whoever is named as the beneficiary when you initially signed that plans document, is the person that will receive the value in the account when you pass away.
This lack of control sometimes can be problematic, especially when an individual retirement saver has designated a beneficiary and has forgotten to keep those designations up to date. The plan documents will control where the money goes and your last will and testament will have no effect because beneficiary designations avoid probate. Your retirement plans will also not be controlled by a revocable living trust because the plans are not trust property; they are individual property.

Is The Title of A Retirement Plan Going To Be Transferred To A Trust Upon Someone’s Death?retirement

No, what happens is that beneficiary is contacted by the custodian. For example, you have an IRA in a brokerage account. You pass away, and hopefully, you have designated beneficiary’s, for example, your spouse as the primary beneficiary. The broker or your financial advisor calls up your spouse and says, “You are the designated beneficiary of this retirement account there is $100,000 in it and you have a few options for distribution. What would you like to do? Would you like to pay the income tax obligation now, cash it out and do whatever you wish with the money, or do you wish to inherit this IRA and stretch out the tax obligation over your lifetime keep it as your own retirement fund?” Now there are different rules as to whether spouses inherit or if children inherit, but that’s effectively what happens when a custodian handles the transfer to the designated beneficiary.

Continue reading