A. When you pass away, your retirement account will be inherited by whoever you have designated as the beneficiary. They can choose to take a lump sum payment, take periodic payments, or just take the required minimum distribution. If the beneficiary is the spouse, they have the additional option to roll it over into their own retirement account.
A. When it comes to asset protection, control and wealth preservation, the limited choice of simply naming an individual as the beneficiary is woefully inadequate. Fortunately, a properly drafted trust can be employed as a go-between to overcome the inadequacies of being limited to only naming a beneficiary of a retirement account.
Naming a trust on behalf of a see-through designated beneficiary as the primary beneficiary of a retirement account creates an opportunity for advisors and beneficiaries to pause at the death of the account owner and seriously review the existing circumstances at the time and weigh options regarding the distributions--before irreversible financial elections are made. Then, after the pros and cons of each option are considered, the beneficiary can make an informed decision about whether to receive the inherited retirement account via the trust or to have the trust disclaim inheritance of the retirement account allowing the retirement account to go directly to the second beneficiary.
A. Naming a trust on behalf of a see-through designated beneficiary no longer results in a five (5) year payout if properly a drafted trust and beneficiary designations are utilized. The IRS will “look through” the trust to find and use the life expectancy of the designated beneficiary, just as if the individual had been named directly as the retirement account beneficiary. Thus, the “stretch-out” remains available for each individual even when a trust is named as the beneficiary on behalf of a see-through designated beneficiary. The use of a trust for retirement accounts makes sure that children cannot waste their inheritance and benefit from a RMD stretch-out.