What is the best way to title pay-on-death bank accounts, retirement accounts and life insurance policies?

Accounts such as pay-on-death bank accounts, retirement accounts and life insurance policies generally pass directly to beneficiaries without having to go through probate. As a result, people don’t usually title them in the name of their revocable trust. However, in some situations, it may be more advantageous to designate the trust as primary beneficiary.

For instance, if the grantor names the grantor’s child as primary beneficiary on a life insurance policy, and the child has not yet attained legal age at the time of the grantor’s death, a court-appointed guardian may be needed to hold the funds. But if the grantor designates their trust as beneficiary, the grantor has the ability to indicate precisely how and when the funds are to be distributed to that heir. While naming a trust as beneficiary has its benefits, it is important to be careful when designating a trust as beneficiary of retirement assets because it is easy to make errors that can be costly. For example, if such assets are incorrectly managed, there could be acceleration of income taxes on the IRA proceeds.

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