IRAs Are Different

by Michael D. Larsen

IRAs are different from many other assets I deal with in estate plans. IRAs cannot be put into a trust; they already have a trustee who manages them. To name the person or persons you want to inherit your IRA when you die, you have to fill out a beneficiary designation on a form supplied by the trustee for the IRA. Most people name individuals as the beneficiaries of their IRAs. You can name your trust as the beneficiary of your IRA, but that is a complex decision that requires careful analysis. The friendly IRS has many rules about how people can take out distributions on an inherited IRA, ands those rules are even more complicated when your trust is the beneficiary of the IRA.

You also have to remember to call the trustee of the IRA and get the appropriate form whenever you want to change beneficiaries. Changing your personal trust is not enough.

I have seen cases where a person dies without having updated their beneficiary designations on their IRAs, and there is no one named to inherit the IRA. That often means going to Probate Court to fix the problem.

I tell clients to review their estate plans every 5 years or so or when there is a big change in their lives. Remember to look at your IRAs when you do this!