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The new rules of the SECURE Act have significant consequences to those IRA owners who have named a trust as the beneficiary of their IRA or retirement account.

IRA owners want to name a trust as the beneficiary of their IRA for a couple of reasons. First, IRA owners want the post death control that they get from naming a trust as a beneficiary when a trust is named as a beneficiary, then their child cannot spend all of the IRA funds immediately after the IRA owner dies.

Other IRA owners, in the past, named a seethrough conduit trust as the beneficiary of their IRA because they did not want their children/beneficiaries to be able take more than their required minimum distribution after the IRA owner died the IRA owner wanted the taxable distributions to be "stretched" over the trust beneficiary's lifetime.

If a trust must be used a beneficiary of an IRA, the IRA owner will have to decide between the favorable income tax treatment of a conduit trust, where all distributions are taxed at more favorable individual income tax rates, but the trust is empty 10 years after the IRA owner dies. Or the IRA owner will choose the accumulation trust, giving the IRA owner more post death control, but realizing that distributions accumulated in the trust will likely be taxed at 37%.

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This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Estate Planning Attorney