change my beneficiary to Trust ???

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bluegill
Posts: 38
Joined: Thu Oct 04, 2018 11:15 am

change my beneficiary to Trust ???

Post by bluegill »

Can I change my beneficiary to "name" Trust for the following accounts ??
Thrift Savings Plan account
credit union checking and savings accounts (yesterday credit union employee said I could not)
IRAs
vanguard brokerage accounts
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Watty
Posts: 20876
Joined: Wed Oct 10, 2007 3:55 pm

Re: change my beneficiary to Trust ???

Post by Watty »

With the retirement accounts you need to be very careful since if it is not done just right the money may need to come out of the IRA and be taxed and distributed to the trust. The problem is that a trust is not an individual so it may not be allowed to keep the money in the IRA. I know of a situation where that almost happened even though a lawyer set it up

Having some types of trusts be the beneficiary of a retirement account is possible if it is done just right but that is not something that I would recommend that you try to do yourself. If you want to do this then be sure to have the lawyer who sets up the trust tell you exactly how to do this right if it is the type of trust that this can be done with.

The TSP may be even more of a problem since the TSP has different inheritance rules than an IRA. Here is what I have posted before when retired people mention that they have a large TSP. I don't have a clue how a TSP would work with a trust.
Be sure that you understand that the TSP inheritance laws are different than IRA inheritance laws and they are sometimes worse. There is a wiki on this;

https://www.bogleheads.org/wiki/TSP_estate_planning

There was a post awhile back where where someone had run into this situation;

1) Dad had a large TSP, he died and left it to his wife.
2) Wife left the money in the TSP as a beneficiary participant, that worked OK for her.
3) A few years later the wife died and left the TSP to their kid. 

The problem was because of the TSP inheritance rules that the kid could not roll the money out to an inherited IRA and they could also not leave the money in the beneficiary participant account so the kid had to withdraw the money and pay taxes on it. If either the Mom or Dad had rolled the money into an IRA then the kid could have avoided, or at least delayed, a six figure tax bill since they could have the money in an inherited IRA.

You might want to consider rolling the money out to an IRA.

When I have posted about this before there have occasionally been comments to the effect of "I will leave a note for my wife to roll the money out to an IRA if I die first." I would not want to count on an 80 year old recently widowed person actually doing that.
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FIREchief
Posts: 5461
Joined: Fri Aug 19, 2016 6:40 pm

Re: change my beneficiary to Trust ???

Post by FIREchief »

Watty wrote: Sun Aug 23, 2020 10:46 am With the retirement accounts you need to be very careful since if it is not done just right the money may need to come out of the IRA and be taxed and distributed to the trust. The problem is that a trust is not an individual so it may not be allowed to keep the money in the IRA. I know of a situation where that almost happened even though a lawyer set it up
Just to clarify with passage of the SECURE act; for a non-qualified designated beneficiary, the difference between a non-qualified trust (i.e. doesn't meet the IRS requirements as an "individual") and a qualified trust is five year distribution versus ten year distribution. If it's a Roth IRA, the trust will no be immediately taxed on distributions. See my signature.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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