Trusts as Beneficiaries of Retirement Benefits
A host of problems arise when a trust is named as a beneficiary of a qualified retirement plan or IRA, including the limited flexibility afforded by current IRS rulings in identifying the measuring life used to take post-death required minimum distributions. Additional requirements and limitations arise when these retirement funds pass to a Qualified Terminable Interest Property Trust, a Bypass Trust, or a Special Needs Trust. The language included in (or omitted from) the trust governing instrument can have dramatic impact upon realizing the desired benefits of these trusts when they serve as repositories for post-death retirement accounts.
The numerous problems associated with retirement funds after the participant’s death can be exacerbated when the funds are characterized as community property, including problems that arise if the nonparticipant spouse predeceases the participant. Effecting a non-pro rata division of community property assets at death can reduce some of these complexities, but may cause tax problems of its own. The problems can often be minimized through the use of a funded revocable trust, with both spouses serving as grantors, which is named as the beneficiary of these retirement assets. Here again, however, it is imperative that proper language be included in the governing instrument.