Naming Trust as the Beneficiary of a 401(k)
Have a client asking about he pros and cons of naming his trust as the beneficiary on his 401(k). All I can really think of is Cons…would there really be any pros? One of the major cons would be RMDs based on the oldest benie’s age. What else would be considered a major con?
Permalink Submitted by Alan - IRA critic on Tue, 2021-01-19 21:56
This question depends on what benefit the trust might be for it’s beneficiaries. Who are they? Are they financially responsible or competent? Are they disabled and need a SNT? Do they need protection against creditors including spouses in a divorce? Who will be the trustee of the trust, and will they have discretion on whether to retain income in the trust or to distribute it? If the trust is just going to be terminated after death and the 401k distributed out of the trust, why name a trust in the first place?
Permalink Submitted by Bruce Steiner on Mon, 2021-02-15 01:14
I don’t know what you mean by “his trust?” The client will be dead when the benefit is payable, so he can’t be a beneficiary of a trust after his death.
However, he could leave the benefits in trust for his beneficiaries. Unless the amount is too small to warrant administering trusts, ouir clients would usually do that. The benefits are that it keeps the benefits out of the beneficiaries’ estates, and it protects the benefits against the beneficiaries’ creditors and spouses.
Bruce Steiner