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Should I Name a Living Trust Beneficiary of a Roth IRA?

April 21, 2021
David Parker, Esq.
New RMD rules
David Parker, White Plains and New City NY Estate Planning Attorney
David Parker, Esq.
David Parker is an attorney who specializes in Estate Planning and Elder Law and has been practicing law for 30 years. Be it Wills, Trusts, Powers of Attorney, Health Care Proxies, or Medicaid Planning, David provides comprehensive and caring counsel for seniors and their families. A large portion of David’s practice is asset protection strategies so that families do not lose their hard earned savings to nursing home care costs. He also handles probate administration for the settlement of estates.
Can a living trust be the beneficiary of a Roth IRA?

The simple answer is yes, a living trust can be the beneficiary of a Roth IRA. However, without knowing more about an individual’s specific circumstances, it’s hard to know if this is a wise move.

A November 2018 article from NJ Money Help entitled, “Be careful when choosing a beneficiary,” explains that there are several things you need to know when considering a living trust as the beneficiary of a Roth IRA.

By designating a living trust as your beneficiary, the distributions from the Roth IRA at your death will become mandatory based on the life expectancy of the oldest beneficiary named in the trust.

This is an important point if you’re currently married. That’s because you’ll forfeit the ability for a spousal rollover, by naming the trust as your beneficiary.

Current law permits IRAs to be passed to a spouse as a beneficiary, and the spousal beneficiary can treat the account as if it was their own IRA.

In the case of a Roth IRA, this means the surviving spouse can continue to defer distributions tax-free for their lifetime.

By naming the living trust as beneficiary, this benefit is lost no matter if your spouse is one of the living trust beneficiaries.

Why?

Distributions are required to begin immediately, if the beneficiary is anyone other than a spouse.

Thus, you would forgo the ability to allow the funds to continue to grow tax-free for a longer period of time.

You should talk about this with an experienced estate planning attorney. He or she will be able to look at your entire financial situation before you determine if this is a wise move for you.

Reference: NJ Money Help (Nov. 2018) “Be careful when choosing a beneficiary”

 

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