Beneficiaries for IRA: In children's names or in the name of the trust I have set up for them?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Do you have over the $15MM/$30MM which triggers taxes (and what are NY estate tax thresholds and laws)?

It’s true that beneficiaries don’t deal with probate but the trust is to avoid taxes (and also doesn’t go through probate).

Exactly.
Most people don’t need trusts unless they are going to leave a lot of money to young children. The Big Beautiful Bill Act made the federal lifetime estate tax exclusion $16M starting in 2026, $32M if married. The state estate tax varies. The vast vast majority of people will fall under this. Just make sure you have beneficiaries designated for your accounts and possessions. Use a trust if your situation and state probate laws make it easier.

A 40 year old adult with, for example, $1m in life insurance and a 5 yr child has no idea whether they will be “leaving a lot of money to young children” or not.

It’s all fun and games until an 18 yo kid gets $1m at once.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Mine goes directly to my children because they could stretch distributions over their lifetime and avoid the 10-year distribution, which would cost more in taxes.

ummm....when's the last time you reviewed that decision with an expert? because i think that rule changed in 2020, so your children will still be subject to the 10 year rule. You might want to look into that!

The last time I reviewed with an expert was in 2016, so thank you. I will change it if it makes sense - worst case, they get it all at once and have to spend it in 10 years. I'm not rich or that old, so I'm not sure I want to spend money on advice and changes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Mine goes directly to my children because they could stretch distributions over their lifetime and avoid the 10-year distribution, which would cost more in taxes.

ummm....when's the last time you reviewed that decision with an expert? because i think that rule changed in 2020, so your children will still be subject to the 10 year rule. You might want to look into that!

The last time I reviewed with an expert was in 2016, so thank you. I will change it if it makes sense - worst case, they get it all at once and have to spend it in 10 years. I'm not rich or that old, so I'm not sure I want to spend money on advice and changes.

The 10 years wouldn’t start until they’re 21, but after that it would apply.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Mine goes directly to my children because they could stretch distributions over their lifetime and avoid the 10-year distribution, which would cost more in taxes.

ummm....when's the last time you reviewed that decision with an expert? because i think that rule changed in 2020, so your children will still be subject to the 10 year rule. You might want to look into that!

The last time I reviewed with an expert was in 2016, so thank you. I will change it if it makes sense - worst case, they get it all at once and have to spend it in 10 years. I'm not rich or that old, so I'm not sure I want to spend money on advice and changes.

Nobody has to spend an inheritance in 10 years. It will be distributed over a 10 year period. (Not sure what the exceptions are).

[Anonymous]

I can’t imagine asking for advice like this on this silly forum when I’m actually paying someone who presumably knows what they’re talking about

[Anonymous]

Naming a trust as the beneficiary will protect the assets in the event of your child’s death, divorce, remarriage, etc. - if drafted this way, the assets in the trust will pass in whatever way the trust specifies. It should be a see through conduit trust because the distributions from an IRA are taxable and the tax rate for trusts can be much higher than the tax rate for individuals, so you would probably want the distributions to be taxed at the individual rate.

[Anonymous]

Anonymous wrote:Any finance people on with knowledge on this?
for background: I'm in NYS (where apparently probate is "not a huge deal", according to estate planning attorney)

I have 2 different financial advisors telling me 2 different things:

1 says to make the trust i have set up for my kids as the Beneficiary of my IRA, because of the 10-year distribution rule for Inherited IRAs.
But the advisor at the bank I have the IRA with says to leave it directly to my children, to avoid probate.

TIA!

- Avoid probate. Doesn't matter if it's a huge deal or not.
- Are the kids over 21?
- Is the trust you already have a revocable trust or irrevocable? Either way, the trust you need is a 'see through' trust, that becomes irrevocable on your passing.
- Do you have a spouse?
- As long as there is a beneficiary named, the account does not go through probate in most states.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Mine goes directly to my children because they could stretch distributions over their lifetime and avoid the 10-year distribution, which would cost more in taxes.

ummm....when's the last time you reviewed that decision with an expert? because i think that rule changed in 2020, so your children will still be subject to the 10 year rule. You might want to look into that!

The last time I reviewed with an expert was in 2016, so thank you. I will change it if it makes sense - worst case, they get it all at once and have to spend it in 10 years. I'm not rich or that old, so I'm not sure I want to spend money on advice and changes.

This is really important and really important to teach your kids who will inherit from you: the rule is not that the money has to be SPENT in ten years. You are not suddenly in "Brewster's Millions." The rule is that the money has to be withdrawn from the favorable taxation treatment that it is accorded inside the IRA within ten years.

That can be done in increments or all in one go (as long as the beneficiaries are not subject to an RMD). But the money can then go in a savings or investment account--it does not have to be spent.

I hate to be pedantic about this, but this distinction could not be more important, especially if they end up getting access to this money while they are young.