How should we list beneficiaries for IRA and life insurance given 4 people listed in our trust?

Should we have our son & daughter listed as beneficiaries, after spouse, on our IRA so they get it all? Should we have son/daughter listed as beneficiaries on our life insurance, after spouse, because they will be the ones paying for our funerals.

IRAs, Life Insurance
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November 2015

I would advise you to ask the attorney who created your family trust the above questions. Your attorney should know the approximate size of your assets, the terms of your life insurance policy, the trust structure, and your wishes to determine the appropriate beneficiary selections.

The decision to either name your children or your family trust as contingent beneficiary will depend on how your family trust is structured and how the assets within your trust and IRAs are scheduled to pass on to your children. If you want your family trust to govern how assets and IRAs pass to your children, then you should name your family trust as the contingent beneficiary after naming your spouse as the primary beneficiary.? Parents who are concerned that an adult child will mismanage their finances—or potentially fall into “Lottery Syndrome”—name the trust as contingent beneficiary. You can direct a trust company, professional fiduciary, or other third party to become the trustee of the assets to ensure that the IRA is managed appropriately and the instructions within the trust are followed. The trust should also be named as contingent beneficiary if your children are minors.

If you would like your children to receive your IRA assets with no restrictions, you can name them as contingent beneficiaries. This gives them the flexibility to manage the inherited IRA and take distributions as they deem appropriate once both parents both pass away.

Naming a beneficiary within a life insurance policy will depend on the purpose of the life insurance policy, the size of your estate, the amount of liquid assets, and the types of assets within an estate. If the life insurance policy is a relatively small amount and is intended to cover burial expenses, naming the children the beneficiaries will allow them to receive funds fairly quickly to pay for burial expenses and other arrangements—without first having to go through the long estate-settling process.

If the death benefit of the life insurance policy is in the hundreds of thousands of dollars—or more—the decision to name the children outright becomes more complex and will depend again on the purpose of the life insurance policy.

September 2017
September 2017
September 2017