Fox Business has an article on A New and Smart Way to Leave Your IRA to a Minor where they discuss the importance of reviewing beneficiaries on all acounts including insurance, annuities, and retirement plans.
They discuss leaving a percentage of the account rather than a dollar amount as this can cause complications if there are not enough assets in the account.
“If you don’t name someone in your will to act as “financial guardian” for your granddaughter, then your IRA will end up in probate court with a judge making the decision. And it might not be the person you’d want. (Your son-in-law, for instance.)”
Not only that, once the probate court is involved, it can get very expensive, depending upon the laws of the state where the minor lives. “The court gets joint jurisdiction,” says Goldberg. It can require the guardian to post bond and prepare annual reports on how the money was spent. You may need pre-approval each time you want to take a withdrawal. The court could require that the money be taken out as a lump sum, negating the benefits of “stretching” withdrawals over your granddaughter’s life expectancy.
To avoid the jurisdiction of the probate court, you can leave your IRA to a trust instead of directly to your granddaughter. As the beneficiary of the trust, she would still receive all of the benefit of your IRA. You get to appoint a trustee- which can’t easily be changed by a court- and this individual would take the annual required distributions from your IRA. The money goes into the trust and, based on the conditions you set, it can either be paid out to cover some of your granddaughter’s living expenses or accumulated to pay for college.