IRA Beneficiary
19. Option 3: Trust as Beneficiary
Naming a trust as beneficiary will give you maximum control over your tax-deferred money after you die. That's because the distributions will be paid not to an individual, but into a trust that contains your written instructions stating who will receive this money and when.
This can protect the assets from the courts (if the beneficiary becomes incapacitated), from creditors, spouses and irresponsible spending.
And it can help save estate taxes after you die. You probably are aware that, currently, in 2010 there is no federal estate tax, but it is scheduled to return in 2011. So, it is still important to understand how the estate tax can affect your tax-deferred plans.
Also, some states have their own death or inheritance tax. So, even though there is currently no federal estate tax, your estate may have to pay a state tax.
First, let's look at how naming a trust as the beneficiary works.