In fact, in many cases, these types of accounts won't have anything to do with your living trust. The reason is that retirement accounts are distributed to a designated beneficiary. When you set up a retirement account, they will generally ask you to designate a beneficiary on a "beneficiary form" - someone who will get that retirement account when you pass away. Then you should designate a secondary/contingent beneficiary. You designate a beneficiary (both primary and secondary) by filling out forms these companies give you when you open the account.
Therefore, if you name your cousin "Sally" as your beneficiary, then your cousin "Sally" gets your IRA when you die. What you say in your living trust is irrelevant. The beneficiary form trumps your will or your trust. Imagine your IRAs are on an entirely different planet. The only thing that governs the distributions of a retirement account is the beneficiary form. So you see, these retirement accounts don't go "IN" your living trust. In fact, they generally have little, if anything, to do with your living trust.
Now, that being said, some people may choose to make their living trust the BENEFICIARY of their retirement account. Now that's what they might be thinking when they say their IRA is "in" their living trust. So while the IRA might be payable to a living trust as a beneficiary, the IRA is not "in" the trust as real estate, bank accounts, investments, and other assets actually titled in the name of the trust would be. Some practitioners are fond of advising their clients to name their living trust as the beneficiary of a retirement account . I'm not terribly fond of this approach for several reasons:
1) Naming a trust as the beneficiary of your retirement account may be entirely unnecessary. It puts an administrative burden on your trustee to make sure the required minimum distributions are withdrawn every year and distributed to the beneficiaries.
2) There may be negative tax consequences if you name a living trust as the beneficiary of a retirement account.
3) It's logistically much simpler to name human beings as beneficiaries of a retirement account. Naming the trust as the beneficiary can be an administrative nightmare and cause unnecessary complications.
I tell my clients that if they name their living trust as the beneficiary of a retirement account, they have to ask themselves WHY they are doing so.
So here's my basic advice when it comes to retirement accounts: Name your spouse as your primary beneficiary (it's usually required anyway). If you're unmarried, name anyone you want. Then name your children (or anyone else you want) as secondary/contingent beneficiaries.
Now this assumes your beneficiaries are in good shape and you don't have any major concerns about how they would handle an inherited retirement account. However, if you do have significant concerns, then you may indeed wish to name your living trust as the beneficiary. While it may cause a small administrative burden for your trustee, it might be better than naming an irresponsible beneficiary to your retirement account.
You can also change your mind over the years. For example, while my children are young, I've named my living trust as secondary beneficiary on my retirement accounts. However, once my children get older and have good heads on their shoulders, I will probably name them directly instead of naming the living trust. That would probably make life easier for everyone.
If you need help with your estate plan, feel free to contact us at (661) 414-7100.