If the appropriate language is not in the trust agreement and you designate it as the beneficiary of your IRA, then your beneficiaries will be required to withdraw all of the funds out of the account in as little as five years after your death instead of over their life expectancies. If you still have assets held in a 401(k) or another type of qualified retirement plan with a former employer and are not concerned about creditor issues, then consider rolling the assets over into an IRA. It will offer your beneficiaries the flexibility of stretching RMDs out over their life expectancies instead of being forced to withdraw all of the funds in as little as five years. The SECURE Act, part of the spending bills passed by the U.S. Senate on Dec. 19, 2019, and signed into law on Dec. 20 by President Donald Trump, pretty much ended the stretch IRA, and its strategy to shelter inherited income. Under the new law, non-spouse beneficiaries will have to withdraw all the funds in the inherited IRA within 10 years from the death of the original account owner. It applies to IRAs inherited after Dec. 31, 2019. In June 2014 the U.S. Supreme Court held that once the retirement assets pass to an individual beneficiary, they lose their creditor protection and will be immediately accessible to the creditors of the beneficiary. If you want to provide creditor and divorce protection for your beneficiaries, then consider leaving the retirement plan assets to a discretionary lifetime trust or a special IRA Trust for the benefit of the beneficiaries instead of outright. Instead, you should consider designating the separate share trust created for the minor in your Revocable Living Trust or a separate IRA Trust as the beneficiary. Also, you will need to take into consideration generation-skipping transfer taxes if the beneficiary is a grandchild, or, if the beneficiary is not related to you, then more than 37½ years younger than you. Instead, you should look to cash or life insurance to pay the estate tax bill since these assets will not generate any income taxes, or even stocks or real estate since these assets will receive a step-up in basis and so the income tax consequences of a sale will be minimized. Also, many revocable living trusts do not contain the appropriate language to administer IRAs left to an A or B Trust. Only you, your spouse, and your estate planning attorney can determine when and if your retirement plans should be named as the primary beneficiaries of the AB Trusts created in your Revocable Living Trust.
