A common question our Michigan estate planning clients have is, "what should I do with my IRA and retirement benefits when setting up a Michigan revocable living trust?" Like all good lawyers, our answer is typically, "it depends."
The WSJ.com had a reader submit the question, and they provided some analysis of the question, which you can read here: Trust as Beneficiary of IRA Is a Popular Strategy.
Typically, we will name the spouse as the initially beneficiary of the IRA or retirement account instead of the Michigan living trust. The reason for this is that we are avoiding two potential pitfalls. First, we don't have to worry if the trust is a "see-through" or "conduit" trust for IRS purposes. Second, the spouse has the added benefit of being able to do a spousal roll-over which allows further tax deferment.
However, it is a more complicated decision when you get past the spouse in terms of who to name as a beneficiary between the living trust and other family. Typically, we will name the Living Trust as the beneficiary of the retirement accounts and IRA money as opposed to the other family members directly. The reason to name the Michigan Living Trust directly is to exert more control over the assets. The downside, assuming the Michigan Living Trust qualifies as a "see-through" or "conduit" Trust, is that you must use the life span of the oldest beneficiary when computing the minimum required distributions.
As you can see, there is quite a bit of legal and financial counseling that goes into, what seems like, a simple question of who to name as the beneficiary of your IRA or retirement account.
