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Staying current with the financial industry’s rules and regulations is of the utmost importance. Back in the 1980s early on in my career IRA accounts were just beginning to catch on. At that time the focus was on tax planning and wealth accumulation. Since then IRAs have evolved and much of the focus now is on distributions and income planning.

Baby boomers are marching through life and so are our IRA accounts. IRA’s are a two part proposition. First we’re accumulating assets and eventually we’ll shift into a mindset of maintaining and distributing the wealth we’ve created. When establishing a traditional IRA, we don’t often think much further than choosing a beneficiary in the event of a premature death - and then only because a form asks for it. Yet, when retirees begin approaching the age of 70 ½ - this is the age for beginning required minimum distributions (RMD’s) from traditional IRAs — the decisions become more critical.

Recently I attended a program at our home office on retirement planning and distributions. I’d like to share with you a few of the highlights.

Upon entering the technical world of the traditional IRA, you’ll see that whom you name — or don’t name — as the beneficiary may have a tremendous impact on how much money you, your heirs and the Internal Revenue Service will eventually receive from your traditional IRAs.

Always keep your beneficiary information up to date to reflect any changes in your life. Trust me, you don’t want an oversight to keep a former spouse as the beneficiary on your retirement account (or life insurance policy) unless of course that’s your intention. It’s an awfully messy situation for the surviving spouse and entire family when things go awry. Check your beneficiaries!

Under current law, individuals who attain 70 ½ have until April 1 of the following year to begin taking their required minimum distributions. The required minimum distributions are based upon the account owner’s age using the Single Life Expectancy Table, or if the account owner’s spouse is the sole beneficiary of the IRA and the spouse is more than 10 years younger than the account owner, the Joint Life and Last Survivor Expectancy table is used. These same individuals are very often beginning to make significant estate planning decisions as well.

One such decision is the utilization of a revocable living trust as your estate planning control vehicle-of-choice. The next obvious decision would be naming this trust as beneficiary of your traditional IRA. The decision to name your revocable living trust as the beneficiary of your IRA has a handful of complexities that must be addressed.

Individuals utilize revocable trusts as the beneficiary of their traditional IRAs to help fund their estate plan and as a way of organizing personal assets so they can be distributed more efficiently and equitably at death to loved ones. However, a trust generally has no life expectancy. During the IRA owner’s lifetime, an IRA owner who names a trust as a beneficiary of his or her IRA takes their lifetime required minimum distributions using the Single Life Expectancy Table using the IRA owner’s age.

However, upon the death of the IRA owner the trust named as the beneficiary of the IRA must qualify as a “designated beneficiary” in order to minimize the required distributions from the IRA by using the trust’s beneficiaries as the measuring lives for post-death required minimum distributions. If the trust is not a “designated beneficiary”, then the IRA account must be distributed within five years of the IRA owner’s death.

A trust is a “designated beneficiary” if the following conditions are met: (i) the trust must be valid under state law; (ii) the trust must be irrevocable or by its terms become irrevocable upon the IRA account owner’s death; and (iii) the trust document and all its amendments, together with a list of the trust’s beneficiaries, must be provided to the IRA custodian by September 30 of the year following the IRA account owner’s year of death.

If the trust is a “designated beneficiary”, then the required minimum distributions will based upon the life expectancy of the oldest beneficiary of the trust. In determining the oldest beneficiary of the trust, the Treasury Regulations require that all contingent beneficiaries be taken into account if such contingent beneficiaries can take any portion of the IRA distributions. In addition, if the estate tax marital deduction is to be obtained for the IRA account, then the trust document must be drafted with particular provisions to attain the marital deduction. Therefore, careful drafting of the trust document is necessary.

These laws create some interesting retirement and estate planning opportunities. There are still several requirements that must be satisfied in order for these opportunities to be realized. If you wish to examine the benefits of this type of planning or examine your current financial plan to make sure it will comply with the new changes, please seek the advice of your financial advisor, attorney or tax professional. This is just one example why it’s so important to understand the implications of your decision when you’re designing, implementing and managing your retirement assets. Stay tuned for more!

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Darcie Guerin is a financial adviser and branch manager at Raymond James & Associates Inc. at 606 Bald Eagle Drive, suite 401, Marco Island. Contact her at Darcie.Guerin@raymondjames.com, 389-1041 or toll-free (866) 343-0882.