Although some IRA owners name a trust or a charity as beneficiary of their IRA, most will want to name a person or persons. Generally, you should avoid naming your estate as beneficiary because your IRA will then go through probate to the heirs designated in your will. That needlessly delays distribution of the IRA’s funds and the IRA may not end up in the hands of the people you intended.
Naming your estate as IRA beneficiary also undermines an inherited IRA’s tax deferral, potentially costing your survivors many thousands of dollars in tax-deferred growth. Depending on the age of the owner at death, the contents of an IRA passing to an estate must be distributed either within five years or the remaining life expectancy of the deceased owner.
On the other hand, designated IRA beneficiaries can stretch out their required distributions over their life expectancies. With a 40-year life expectancy, for example, the required first-year distribution would be only 2.5 percent, leaving the rest of the IRA intact for tax-deferred growth.
