Onlyin special circumstances should a trust be the beneficiary of anIndividual Retirement Account.
An individual should be the designated beneficiary of an IRAunless there is an important and overriding reason to name a trust.Under the Internal Revenue Code, the beneficiary of an IRA can only bean individual, or a group of individuals, or a special kind of trustfor which there are specific requirements.
In such a case, the IRA has what the code calls a qualified"designated beneficiary" who can take the required annual payments overa longer time and thus defer the income tax on the distributions.
If the employee names his estate, or other entity alone or asa part of a group of individuals, then there is no "designatedbeneficiary," and the payout period is shortened. Only by having aproperly named designated beneficiary can one ensure that thebeneficiary can extend payments for the longest period of time.
The usual reasons for wanting a trust as the beneficiary arethat the intended individual beneficiaries are minors, or incompetentor need spendthrift protection. In larger estates, there may be adesire to use a trust to provide for the surviving spouse's life, butto ensure that after the surviving spouse dies, the remaining moneygoes to the children. This is especially true in second-marriagesituations.
