The timeframe for distributions from an inherited retirement account depends on the beneficiary’s relationship to the decedent, the age of the beneficiary, and whether or not the beneficiary qualifies as a disabled or chronically ill person. Spouses have the most flexibility, and there are also special timeframes for minor children of the decedent and beneficiaries not more than 10 years younger than the decedent. Distributions to a disable or chronically ill person may also be extended. For all other individuals receiving distributions from an inherited retirement account, such as a non-disabled adult child of the decedent, the inherited account must be fully disbursed within 10 years of the year of the decedent’s death.
Prior to the SECURE Act, with some exceptions, if a Trust was the beneficiary of a retirement account, the balance of the account had to be disbursed to the beneficiaries of the Trust within 5 years of the decedent’s death. Now, under the SECURE Act, a Trust is treated the same as a non-disabled adult child, and the inherited account must be fully disbursed within 10 years of the year of the decedent’s death.
Depending on how your Trust is set up, it may be helpful to have an inherited retirement account pass through the Trust before being divided into individual beneficiary accounts. By naming the Trust as the beneficiary of the retirement account, the provisions of the Trust may be applied to the distribution of the inherited retirement account. For instance, a Trust may provide for how assets are distributed in the event the beneficiary:
- died prior to the retirement account holder. Would you want the deceased beneficiary’s share of the account to go to his children, spouse or siblings?
- receives needs-based assistance, such as Medicaid. How does the beneficiary receive his share of the account without losing his Medicaid benefits?
- is in the middle of a divorce or going through bankruptcy. Will the beneficiary lose a portion of the account due to pending litigation?
- is a minor or incapacitated. Will a Conservatorship need to be created?
To determine if you should list your Trust as the primary or secondary beneficiary for your retirement account, you will need to consider the beneficiary, the tax implications, and the provisions of your Trust. A Trust can provide for the future circumstance of a beneficiary. Let Wheat Law assist you with developing an estate plan that reflects your intentions for the distribution of your estate, including retirement proceeds.
Schedule your Estate Planning Consultation with Wheat Law by calling (770) 404-5770 or by emailing us at info@wheat-law.com.