Why We Name Trusts as Contingent Beneficiaries
After reading the information above, you might be curious as to why we name trusts as contingent beneficiaries. We examine a US Supreme Court ruling below to give your clarity.
The United States Supreme Court determined that if 401(k)s and IRAs are transferred to non-spousal beneficiaries, they are subject to the creditors of the beneficiaries. In a Supreme Court case, a deceased woman left a $300,000 IRA directly to her daughter. At the time of her mother’s death, the daughter filed a bankruptcy petition. As a result, the United States Supreme Court decided to give the entire $300,000 to the creditors in the bankruptcy case. Why?
The reason for this decision was that owners of 401(k)s and IRAs receive protection to preserve their assets for retirement, but that same protection is not afforded to subsequent non-spousal beneficiaries.
However, if the mother had named her trust as the beneficiary, her daughter would’ve received the entire $300,000. This is because the asset would be protected by the trust document, where the trustee is authorized to transfer some or all of the income or principal of the trust to the beneficiary, leaving that asset fully protected for the beneficiary.
Therefore, our attorney typically names the trust as a contingent beneficiary for qualified assets.
Questions? We Have Answers.
As you can see, it is critical to get an attorney to fund your hard-earned assets into your trust. The Supreme Court ruling above is one of many examples of the worst-case scenarios you and your loved one could experience when assets aren’t transferred properly. To best avoid this nightmare, our Dedham attorney invites you to schedule a consultation to get started on this critical process.