Specifying the beneficiary of an investment account

[DocPit45]

What is the name of your state? South Carolina
I just created a living trust. My daughter is the successor trustee. My minor grandson, Alfred Smith, is the beneficiary of an investment account, Vanguard IRA Acct # 12345.

1) The trust lists Vanguard IRA Acct # 12345 in the schedule of property included in the trust.

2) The trust specifies that Alfred Smith shall be given Vanguard IRA Acct # 12345.

3) Vanguard IRA Acct # 12345 itself does not identify the living trust as its beneficiary. It identifies the person, Alfred Smith, as its beneficiary.

Do I have that right?

 

[LdiJ]

What is the name of your state? South Carolina
I just created a living trust. My daughter is the successor trustee. My minor grandson, Alfred Smith, is the beneficiary of an investment account, Vanguard IRA Acct # 12345.

1) The trust lists Vanguard IRA Acct # 12345 in the schedule of property included in the trust.

2) The trust specifies that Alfred Smith shall be given Vanguard IRA Acct # 12345.

3) Vanguard IRA Acct # 12345 itself does not identify the living trust as its beneficiary. It identifies the person, Alfred Smith, as its beneficiary.

Do I have that right?

Nope. The trust should be listed as the beneficiary. Or, the account should not be in the trust.

 

[TrustUser]

currently, the account is not in the trust. and it will be given to alfred smith, because he is currently the beneficiary of the account.

 

[Taxing Matters]

Do I have that right?

No. For the trust to control what happens to the account it must be the owner of the trust. You can either have the trust be the pay on death (POD) beneficiary of the account so that it goes the trust after you die, or you can transfer the account to the trust now so that the trust is the owner it. Either way works fine so long as that living trust is a revocable living trust or is otherwise a grantor trust. If it is not a revocable living trust or grantor trust then the tax outcome is significantly different between those two methods.

 

[DocPit45]

So, the beneficiary of the IRA is simply The MyName Living Trust. My minor grandson becomes the IRA beneficiary as specified in the Trust. Correct?

 

[t74]

You need to discuss the tax consequences with your CPA ASAP. If you are not in a huge hurry, you may want to see if there are additional changes affecting IRAs and estate taxes next year.

 

[Taxing Matters]

So, the beneficiary of the IRA is simply The MyName Living Trust. My minor grandson becomes the IRA beneficiary as specified in the Trust. Correct?

Yes, if done correctly.

 

[TrustUser]

does the trust have some sort of instructions as to how to distribute the vanguard account to your grandson ?

 

[zddoodah]

I just created a living trust. My daughter is the successor trustee. My minor grandson, Alfred Smith, is the beneficiary of an investment account, Vanguard IRA Acct # 12345.

1) The trust lists Vanguard IRA Acct # 12345 in the schedule of property included in the trust.

2) The trust specifies that Alfred Smith shall be given Vanguard IRA Acct # 12345.

3) Vanguard IRA Acct # 12345 itself does not identify the living trust as its beneficiary. It identifies the person, Alfred Smith, as its beneficiary.

Do I have that right?

Whether you "have that right" depends on the result you want.

As far as #1, simply listing an IRA in a schedule does not make it a trust asset. While I'm not an expert in the area, I did a quick google search and found results that indicate a trust cannot own an IRA (at least not while the settlor and individual owner of the IRA is still alive).

As far as everything else, if Alfred is named as beneficiary of the IRA, then he'll receive the money when you die, regardless of what the trust says.

If you want the money in the IRA to pass through the trust for whatever reason, you need to designate the trust as the beneficiary of the IRA.

If you didn't use an attorney to set all this up, now would probably be a good time to retain one.

 

[Redemptionman1]

Why are you making this so complicated, you can go into the Beneficiaries: change or add their names, enter a percent amount you want each to get, and save this information into the fund.

Takes like 10 seconds and then you do not have to worry about it again.

 

[TrustUser]

Why are you making this so complicated, you can go into the Beneficiaries: change or add their names, enter a percent amount you want each to get, and save this information into the fund.

Takes like 10 seconds and then you do not have to worry about it again.

the op never came back to answer my question. since the beneficiary is a minor, i was wondering if the trust had instructions as to how to manage the funds. if it did not, there would not be much reason to place it in the trust. but i am guessing that it did, and that was the reason the op wanted to place it in trust.

 

[Taxing Matters]

since the beneficiary is a minor, i was wondering if the trust had instructions as to how to manage the funds.

Indeed, it is rarely a good idea to give a minor his/her inheritance outright. Being young, less knowledgeable, and inexperienced they often tend to make bad financial decisions. Putting the inheritance into a trust that limits access for awhile to pay for only things that will really benefit the kid like education usually works much better. Then when they are older, say 25 or 30, they can get the balance of what is in the trust to use as they wish. Hopefully at that point they'll have the greater maturity and knowledge to use it wisely.

 

[FlyingRon]

Also, some assets (notably real estate), can't be conveyed by minors. A guardian would need to be appointed. A trust, with an adult trustee, is a better solution.