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What if I name a trust as a beneficiary of my IRA? A trust may be a valuable tool in estate planning but when it comes to IRA distribution planning, it can be a potential disaster if the trust is not set up correctly.

Generally, if you do not name a natural person or if you include an entity as a beneficiary of your trust, the entire IRA balance will be required to be paid out using the five year rule, and your heirs will be hit with a heavy tax burden and lose the powerful compound interest benefits of your IRA.

The IRS explicitly says that a trust cannot be a designated beneficiary of an IRA but the IRS has created an exception where a properly constructed trust will qualify as a "see through" trust and be deemed to have a "designated beneficiary" under the IRS rules.

It has become very popular to name a trust as the beneficiary of an IRA or 401(k). However, most people don't need to name trusts as their IRA beneficiaries. It's expensive and there is no tax benefit that can be gained with a trust that cannot be gained without one!

The only reason to name a trust as a beneficiary of your IRA or 401(k) is for nontax personal reasons such as restricting access. You should not name a trust as an IRA or 401(k) beneficiary unless you know what you are doing, you have consulted professionals who specialize in this complex area of trusts and it's the only solution.

If you have questions, then you should possibly give me a call and I look forward to it! What do you think?

Contact: Marc H. Weiss, Archer Weiss Insurance and Financial Services

(818) 610-8560