Revocable Trust

Who should be the beneficiary of your IRA in a Revocable Trust?

There are five basic options in naming a beneficiary to your IRA:

  • Your Spouse
  • Your Children, Grandchildren or other persons
  • A Trust
  • A Charity
  • A Combination of the above

Option 1 – Most people name their spouse as beneficiary.  This is because doing so accomplishes two things: the money will be available to your spouse to provide for his/her needs and the spousal rollover option can provide many more years of tax-deferred growth.  One potential downside is that your spouse will have full control of the money and is under no obligation to follow your wishes.

Option 2 – Naming your children as beneficiaries may be a good option if: you are not married; or there is a good chance your spouse will predecease you; or your spouse will have plenty of assets other than the IRA.  Distributions can be paid out over your beneficiary’s life expectancy after you die, so tax-deferred growth can continue even without a spousal rollover.

Option 3 – The advantage of using a trust is that you can have maximum control over the account.  The distributions are not paid to an individual, but rather, the trustee of your trust.  As an example: the income could be paid to your surviving spouse for his/her lifetime, and then upon his/her death, the income could go to someone else.  The disadvantage is that the funds must be distributed at your spouse’s death.  The tax-deferred growth cannot be stretched out beyond your spouse’s lifetime.  Also, as with all trusts, there are some administrative expenses, including attorney and accounting fees.

Robert Chesley