How do I Incorporate my Retirement Accounts into my Estate Plan?

When you set up a revocable living trust, your estate planning attorney will probably advise you to transfer ownership of your real estate, savings accounts and other non tax-deferred assets to the trust. However, ownership of tax-deferred accounts, such as IRAs and 401Ks, does not get transferred to your living trust. We often refer to these types of accounts as “retirement accounts”. We recommend that you name a primary and a secondary/contingent beneficiary of the retirement account(s) when you set up or update your estate plan.

Because these retirement accounts contain untaxed deferred income, you need to be careful how the beneficiary designation forms are completed. For example, the IRS allows your spouse or children to perpetuate the tax deferral. This rule provides an incentive for clients to name their spouse as primary beneficiary and their children as secondary/contingent beneficiaries. Unmarried clients with children may wish to consider naming their children as primary beneficiaries.

If you name your trust as beneficiary of your retirement account, this may result in unintended tax consequences for your beneficiaries. Talk to an experienced estate planning attorney if you want to name your trust as the beneficiary of your retirement account.

To keep your estate plan up to date: Review the beneficiary designations on your retirement plans every few years, keep records of retirement plan beneficiary designations in your estate planning binder, and talk to your estate planning attorney about incorporating beneficiary designations on your retirement accounts into your overall estate plan.