Question on beneficiaries

Forum|Forum|1 year ago
January 29, 2025
1 reply
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Can you tell me if there is a difference between making the Beneficiary a Trust, vs. 3 individuals?

Some background -- The Trust names the 3 individuals (all adults) as the beneficiaries. Is it "easier" to just make the 3 individuals the Beneficiaries, instead of making the Trust the beneficiary (and it will eventually just go to the same 3 individuals)? Are there any tax implications either way?

Most of our financial accounts are already in the Trust, EXCEPT for a few checking accounts and savings accounts, and IRAs, and Roth IRAs.

Is there a preferred way (tax-wise) to set up the beneficiaries for these accounts?

Thanks!

Ask the Experts - Family Tax II - Jan 2025

Best answer by DaveF1006

It depends. There are no taxable implications in either case but there are legal implications that may be considered. When you make the trust as a beneficiary, the trustee has total control over all the assets and distributes these assets according to how they think they should be distributed. Naming three individuals as beneficiaries gives them immediate control of their shares of the assets.

Having a trustee manage the assets may be desirable if the beneficiaries are minors or in some way mentally incompetent. Also having a trustee may be desirable if the beneficiaries disagree on their shares of the assets that may be distributed. If there are a number of assets in the estate, it may be more advantageous having a trustee to manage the assets.

As i mentioned, there is no advantage tax-wise either way but it would depend if the assets need to be managed or not.