Retirement account beneficiary and a revocable trust

[Anonymous]

Anonymous wrote:My parent has dementia, and I handle the finances and the trust.

There are two of us who will inherit, and there's a chance one of us will die before the parent does. If a retirement account has two beneficiaries--with money to be divided 50-50--and one person dies, what happens to the money? Does it go to the one remaining beneficiary?

In our case, it goes per stripes to the decedent's children. Meaning if I die before my parents, my interest in my parents' estate goes directly to my kids. My siblings have the same thing set up for their kids.

[Anonymous]

Anonymous wrote:Typically it would go to the beneficiaries’ kids if they have kids…but that needs to be spelled out in the trust.

Usually there is standard trust language to handle that.

My understanding is that is not the case if an individual is named as the beneficiary as opposed to a trust being the beneficiary. The trust is not a beneficiary of these investments.

OP

[Anonymous]

Anonymous wrote:My understanding is that retirement accounts with beneficiaries are separate from the trust. Beneficiaries on bank accounts trump wills/trusts. Are there secondary beneficiaries listed in the retirement accounts?

This is also my understanding that beneficiaries trump wills/trusts. I've read you can (in some states) make a trust the beneficiary. However, my parent has dementia so I don't know if we can change the beneficiaries this way.

I had to get a letter stating she can't make her own decisions in order to open a trust bank account for the proceeds from the sale of her house. With that on record, I'm not sure if she could change beneficiaries.

I could sell the investments. At the very least, I could move the cash part into the trust...

OP

[Anonymous]

Anonymous wrote:

Anonymous wrote:My understanding is that retirement accounts with beneficiaries are separate from the trust. Beneficiaries on bank accounts trump wills/trusts. Are there secondary beneficiaries listed in the retirement accounts?

This is also my understanding that beneficiaries trump wills/trusts. I've read you can (in some states) make a trust the beneficiary. However, my parent has dementia so I don't know if we can change the beneficiaries this way.

I had to get a letter stating she can't make her own decisions in order to open a trust bank account for the proceeds from the sale of her house. With that on record, I'm not sure if she could change beneficiaries.

I could sell the investments. At the very least, I could move the cash part into the trust...

OP

I think that's right—my comment above about per stripes applied to a larger trust with assets like a brokerage account and real estate. I think with retirement accounts, if there are two beneficiaries and one beneficiary dies, then it all goes to the living beneficiary, or the successor beneficiary if it is set up that way. Either way, it passes outside of probate. Talk to an accountant, but I believe there are negative tax consequences to making a trust a beneficiary of a retirement account (require quicker distributions).

[Anonymous]

Anonymous wrote:What state?

Maryland

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My understanding is that retirement accounts with beneficiaries are separate from the trust. Beneficiaries on bank accounts trump wills/trusts. Are there secondary beneficiaries listed in the retirement accounts?

This is also my understanding that beneficiaries trump wills/trusts. I've read you can (in some states) make a trust the beneficiary. However, my parent has dementia so I don't know if we can change the beneficiaries this way.

I had to get a letter stating she can't make her own decisions in order to open a trust bank account for the proceeds from the sale of her house. With that on record, I'm not sure if she could change beneficiaries.

I could sell the investments. At the very least, I could move the cash part into the trust...

OP

I think that's right—my comment above about per stripes applied to a larger trust with assets like a brokerage account and real estate. I think with retirement accounts, if there are two beneficiaries and one beneficiary dies, then it all goes to the living beneficiary, or the successor beneficiary if it is set up that way. Either way, it passes outside of probate. Talk to an accountant, but I believe there are negative tax consequences to making a trust a beneficiary of a retirement account (require quicker distributions).

I am working on my parent's estate and the IRA passed directly to beneficiaries outside of the trust/estate. It was easy to distribute, but there are the 10-yr rules for withdrawal and its taxable and has to be maintained as separate accounts by the heirs so it can be withdrawn correctly over the term. If one heir died, I think the remaining primary beneficiary would inherit all.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My understanding is that retirement accounts with beneficiaries are separate from the trust. Beneficiaries on bank accounts trump wills/trusts. Are there secondary beneficiaries listed in the retirement accounts?

This is also my understanding that beneficiaries trump wills/trusts. I've read you can (in some states) make a trust the beneficiary. However, my parent has dementia so I don't know if we can change the beneficiaries this way.

I had to get a letter stating she can't make her own decisions in order to open a trust bank account for the proceeds from the sale of her house. With that on record, I'm not sure if she could change beneficiaries.

I could sell the investments. At the very least, I could move the cash part into the trust...

OP

I think that's right—my comment above about per stripes applied to a larger trust with assets like a brokerage account and real estate. I think with retirement accounts, if there are two beneficiaries and one beneficiary dies, then it all goes to the living beneficiary, or the successor beneficiary if it is set up that way. Either way, it passes outside of probate. Talk to an accountant, but I believe there are negative tax consequences to making a trust a beneficiary of a retirement account (require quicker distributions).

I am working on my parent's estate and the IRA passed directly to beneficiaries outside of the trust/estate. It was easy to distribute, but there are the 10-yr rules for withdrawal and its taxable and has to be maintained as separate accounts by the heirs so it can be withdrawn correctly over the term. If one heir died, I think the remaining primary beneficiary would inherit all.

The 10-year rule applies to trusts, but some individuals can stretch out required minimum distributions longer, which is why it's worth talking to an accountant before changing the beneficiary of an IRA from an individual to a trust.

[Anonymous]

It will depend on the locale. Where do they live?

[Anonymous]

Anonymous wrote:Typically it would go to the beneficiaries’ kids if they have kids…but that needs to be spelled out in the trust.

Usually there is standard trust language to handle that.

FWIW, this is how my grandparents' trust worked but like PP said it was spelled out that way in the documentation.

[Anonymous]

Anonymous wrote:What state?

Maryland

My understanding is that if this follows the rules around per stirpes, it would go to my sibling and not to anyone in the next generation unless we both were dead.

OP

[Anonymous]

Anonymous wrote:If one of the primary beneficiaries dies before the parent, the parent should change their beneficiaries to reflect the new designation. I am not sure if a POA could do that if the parent is unable to, but that is something you/parent could look into before the time comes.

Parent won't do that because they can't manage their own affairs.

[Anonymous]

Per stirpes not per stripes! 😂