Some people in Massachusetts who open an IRA may not put much thought into the beneficiary designation or may think it is something they can take care of later. However, it is important to name the right beneficiary and update the designation as needed.
A person who has no family or who does not want to leave the IRA to family might name a charity as beneficiary. A married person might be required to get written permission from a spouse to name someone else as beneficiary. If a spouse inherits the IRA, distributions will not be triggered, but they will be for anyone else. There could be tax implications. Despite this, some people might want to leave an IRA for children or grandchildren. If they are minors, then a custodian for the account should be designated.
The beneficiary designation needs to be reviewed if there are changes in the family to ensure that it remains up to date. For example, if a beneficiary dies and a replacement is not named, the IRA will become the property of the estate. This could have significant tax implications. There are a few circumstances in which a person may want to name a trust as a beneficiary. This can trigger taxes sooner, but a person may want control over how distributions are made as part of overall estate planning.
For example, if the person who will inherit the IRA receives government benefits because of special needs, owning a substantial asset might make the person ineligible. If a trust is set up, the trustee could use it to pay rent or for other necessities or luxuries for the individual, but the asset would remain the property of the trust. In other cases, a person may only want the beneficiary to receive the assets after reaching a certain age.