Why Should I Name My Trust as Beneficiary of My Retirement Account

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An essential part of establishing and maintaining a trust is funding, the process by which your assets are moved into your trust.  Some assets need to be re-registered into your trust name, while others should have the beneficiary changed to name your trust.  For accounts that have beneficiaries, such as retirement plans, life insurance and annuities, our typical recommendation for our married clients is to name your spouse as primary beneficiary on your accounts and your trust as contingent beneficiary.  Our typical recommendation for our clients who are not married is to name your trust as primary beneficiary and whomever you listed as the beneficiary(s) of your trust as contingent beneficiary(s). 

A very common question we receive from clients is “Why should I name my trust as beneficiary on my assets?” 

There are several reasons it can be a good idea to name your trust as beneficiary of an asset.

First, in your trust you have instructed what should happen to a beneficiary’s inheritance in the event they pass away before you do.  You may want it to go to their children, or to their siblings or to someone else entirely.  A trust allows you to be this specific on what “happens next” if someone passes away.  Typically a beneficiary designation does not allow you to be that specific.  Assets can end up passing to people you did not intend.

Second, your trust has instruction that if a beneficiary is underage or has a disability at the time they are to receive their inheritance, their share will be held in trust for their benefit.  This will allow a minor’s inheritance to avoid going through the court system to have a conservatorship set up (which involves extra time, money and complication).  (A minor is not allowed to receive money outright until age 18.)    If a beneficiary has a disability or is incapacitated at the time of inheritance, your trust provides that their inheritance be held in trust.  This can be important not only to make sure someone capable is handling the money for them but to make sure they aren’t disqualified from any assistance they may be receiving, such as SSI or Medicaid.

Third, if you want to make a change to your beneficiaries, which happens more often than one would think, it is much less time consuming to just change your trust once versus going to each company you have an account with and changing the beneficiary on file with them.  Just have everything pay into your trust and let your trust instruct who your beneficiaries are.

There are more valuable reasons to make sure your beneficiary designations are coordinated with your trust, but these are some of the most common reasons.  If you are not sure if your beneficiary or contingent beneficiary should be your trust, please call us.

Changing the beneficiaries of an asset can be an easy task or an arduous one, depending on the company your asset is held with.  If you work with a financial advisor, the best thing to do is contact them for assistance.  If you need our assistance, please contact Laney, in our office, at laney@legacypllc.com.