IRA Beneficiary

What is the name of your state? Tennessee

I have a revocable trust. My son is my sole beneficiary.

I have several IRA accounts in my name that have the trust as the named beneificiary. I was advised to change the beneficiary to my son's name as this will allow him to spread distribution of payment over a longer period of time.

Is this correct? Won't this start probate?

I was advised to change the beneficiary to my son's name as this will allow him to spread distribution of payment over a longer period of time.

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Good advice unless there is a particular reason to have the trust as the beneficiary.

Won't this start probate?

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No, accounts with named (real people) beneficiaries do not go through probate.

Thank you anteater.

Does this also apply to Roth and SEP IRAs?

eacollie said:

Thank you anteater.

Does this also apply to Roth and SEP IRAs?

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Yes, same as other IRA's. (A SEP is really nothing but a traditional IRA.)

Thanks again, anteater.

One more question...When my son inherits the IRAs (including the ROTH and SEP), can he transfer them over into his own IRA accounts? or what will be his options?

Thanks!

eacollie said:

Thanks again, anteater.

One more question...When my son inherits the IRAs (including the ROTH and SEP), can he transfer them over into his own IRA accounts? or what will be his options?

Thanks!

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No, no, no.... If he does that, the IRS will consider that to be a distribution and the entire amount will become subject to income tax.

While it may seem odd, the IRS considers you to still be the owner of the IRA's. Your son should ask the custodian(s) to re-title the IRA's to reflect that you are deceased and that it is now a beneficiary IRA. They would be re-titled to something along the lines of "The Eacollie IRA (deceased xx/xx/xxxx), for the benefit of Eacollie's Son's Name." Your son will have to take minimum annual distributions. But, he can use his life expectancy to calculate those required minimum distributions and, hopefully, allow the account balances to grow tax-deferred until his own retirement.

Besides IRS publications, these are some good resources:

http://www.fairmark.com/
http://www.irahelp.com/

You're great anteater! Thanks so much!

Sorry...one more question.

If I leave the trust as beneficiary of the IRAs, will the accounts be cashed out upon my death, the trust paying the taxes in that year, and the remainder goes to my son as tax free money?

eacollie said:

Sorry...one more question.

If I leave the trust as beneficiary of the IRAs, will the accounts be cashed out upon my death, the trust paying the taxes in that year, and the remainder goes to my son as tax free money?

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They can be. They don't necessarily need to be. Keep in mind that the marginal tax rates for trust income rise rapidly. For 2006, trust income greater than $10,450 is taxed at a 35% marginal rate. That is why most trusts distribute income to the beneficiaries so that the income is taxed at the benficiaries', presumably, lower tax rates.

Is there some reason that you are hung up on not naming your son as the IRA's beneficiary? You seem to have fairly simple wishes:

My son is my sole beneficiary.

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Why make things more complicated by having another entity - the trust - in the middle?

Thanks again anteater!

I'm being given conflicting advice. The group that created the trust (in California) is telling me to name the trust as the beneficiary. The attorney (in Tennessee) is advising me to change it over to my son's name.

I'm certainly not trying to make things difficult, just trying to understand the implications of each. The whole purpose of creating this trust (for me) is to lessen any impact of taxes for my son when I die and he inherts the IRAs (and other estate monies). At this point in time there is considerably more than $10K in each IRA.

Thanks again for your advice!

eacollie said:

...The group that created the trust (in California) is telling me to name the trust as the beneficiary....

....The whole purpose of creating this trust (for me) is to lessen any impact of taxes for my son when I die and he inherts the IRAs (and other estate monies).

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I find these two statements to be somewhat disturbing. That reference to a "group"... Why not a reference to an attorney? Did they explain how making the trust the beneficiary would lessen the tax impact?

There may be many complicating factors in your situation, but an internet message board is not the place to get into them. Let me suggest that you get hold of some of Ed Slott's books. He is widely recognized as "the man" when it comes to the inheritance implications of IRA's and other retirement plans. His books are inexpensive if you want to purchase and it is likely that your local library also has copies.

Thanks anteater. I'll check the libary.