Why You Should Reconsider Naming An Estate As An IRA Beneficiary

Law Blog

When you have an IRA account set up, you will be able to save money for retirement in a tax-free or tax-deferred manner. The IRA will be paid out even if you pass away. Under these circumstances, the IRA will be paid out to a beneficiary that you name. In some cases, you might choose to name your estate as a beneficiary. But this is often a bad idea.

Failing to Name a Beneficiary

If you fail to name a beneficiary for your IRA, the estate will become the beneficiary by default. Therefore, if you don't want the estate to be the beneficiary, you will need to name another person or entity. However, you can also specifically choose to have your estate be the beneficiary.

Understanding the Probate Process

When an estate is named as a beneficiary, it must undergo a probate process. This is not necessary when the beneficiary is an individual, charity, or trust. With the probate process, the court verifies the estate funds and the property is then distributed to beneficiaries. This process can take a year or longer.

Paying Taxes

With an estate beneficiary, the IRA must be drained within the course of five years and all income taxes must be paid. This causes you to lose the advantage of a tax deferral. If you name someone else as a beneficiary, he or she will continue to receive IRA distributions as if he or she had lived.

This will continue for your life expectancy. There are many cases where beneficiaries can continue to receive payouts for as long as 15 years. Because of the smaller distributions spread out over several years, less tax will need to be paid on these distributions.

Naming Your Spouse

Naming your spouse as a beneficiary also will allow the spouse to treat your IRA as if it is his or her own IRA. This cannot be done through an estate, and no other beneficiary can do this.

Filling Out the IRA Beneficiary Designation Form

When you choose your IRA beneficiary, you will need to fill out the IRA beneficiary designation form. Anything that you write on your beneficiary form will override anything that is contained in your will or trust. Most importantly, you will want to fill out the form properly.

If you do not fill the form out properly, the default arrangements in the custodial agreement will determine where your IRA will go. For this reason, it's a good idea to work with an estate planning attorney, like those represented at https://www.linskylaw.com, so that you can be certain that each part of the process is completed correctly.


4 January 2020

Noni and the Accident

My name is Noni. When I was in college, I was hit by a car while crossing the street. My life was never in danger, but I did break a few bones and had a lot of huge medical bills. I was hoping I wouldn't have to get involved with an attorney, but unfortunately, it came down to that. I used a family friend who is an accident attorney to get some compensation. A few years later, I was hit while riding my bike and had to go through the same process. I suppose I'm lucky to be alive. And it's thanks to accident attorneys that I have been able to put my life back together. I started this blog as a way to let others know just how much lawyers can help you in certain situations.