Question:
I would like to leave my 401k, IRAs, etc. to my family in the Philippines. What is the best and easiest way to do this? Should I list them as beneficiaries or should I have a living trust that states that all my assets will go to them (no properties involved)?
Response:
In principle, you should be able to name your family members as direct beneficiaries of your retirement plans, but it could make life easier for them if you used a trust. You don’t say whether they’re United States citizens, but I’ll assume they’re not. As a result, the distributions would be subject to 30% withholding, which could be paid out to them upon the filing of an income tax return. But that could be difficult for them to file and it would require them obtaining their own Social Security numbers.
For these reasons, and because dealing with U.S. investment companies from overseas can be difficult, a revocable trust (which is the same as a “living” trust) with a U.S.-based trustee might make the most sense. Further, with passage of the SECURE Act, the disadvantages of using a trust are not so great as they used to be. A trust that inherits a retirement plan must withdraw the funds and pay the deferred taxes within five years of the owners death. Before the SECURE Act, individual beneficiaries could stretch out the withdrawals over the full live expectancy. Now, most individual beneficiaries are limited to ten years, so the differential is not so great as it used to be.
Related Articles:
When You May Want Retirement Plans to be Payable to Trusts
The Basic Rules of Retirement Plans Before and After the SECURE Act
