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How a Restricted Beneficiary Form Can Kinda Act Like a Free Trust

Carl Ostenson

Do you have children or grandchildren that aren’t really good with money?

You know the type, the ones who as kids, had their allowance spent before it was even in their pocket and now they have $20,000 in credit card debt and spend money even faster than a drunken sailor.

Or maybe you have a child or grandchild who is struggling with drugs or gambling and a big lump sum of money would only make things worse.

Or maybe you don’t really like your daughter’s second husband, and the thought of him getting some of your money if you were to die suddenly is enough to send you to the loony bin.

Of course you want to pass your IRA/401k onto your kids or grandkids, but you would like to have a say in the matter and maybe you’d like for them to get it over time, instead of one big lump sum.

So what do you do?

You can go to a lawyer and set up a trust. This will dictate how your money and assets are distributed. The average cost could be between $1,600 and $3,000. (Could be more or less depending on your situation…click here to learn more).

But let’s keep this REALLY simple. Most people are not multi-millionaires with 5 cars, 4 houses, 3 businesses and a partridge with a gold necklace in a pear tree.

Most people fit this category:

  • IRA/401k plan is one of your biggest assets
  • Your primary residence is also one of your biggest assets

The house is beyond the scope of this article. Find a good estate attorney if that’s your main concern.

But, we can help you with your IRA, 401k or even bank account money, and this benefit comes free with many annuity contracts (you just have to ask for a special form).

It’s called a “Beneficiary Designation with Restricted Payout”.

It’s a legal binding document that let’s you get very specific in how you want your money to be distributed upon your death.

Here’s what it can do for you:

  • You get to name your beneficiaries just like any other beneficiary form
  • You get to spell out EXACTLY how you want them to receive your money
  • You can set up different restrictions for each beneficiary
  • It takes about 5 minutes to fill out the form
  • (And I’ll mention again, it’s free with many annuity contracts, so just ask for it)

It’s easy, and you now have a legal binding document that took 5 minutes and was FREE.  Now your IRA/401k will be distributed EXACTLY how you want it from beyond the grave.

Here are some of the payout options you can choose:

  • No Restriction: This means that your beneficiary will be able to choose for themselves how they want to get your money. Most will take the lump sum.
  • Full Restriction: Systematic Withdrawal over a fixed period of years (5,10,20 years). This means if your account value is $50,000 and you pick income for 10 years, your beneficiary will receive $5,000 a year for 10 years. You can pick monthly, quarterly or annual payments)
  • Full Restriction: Life Annuity.  This would turn their inheritance into a lifetime income stream for them.
  • Partial Restriction: With this option you give the beneficiary the ability to take up to a certain percentage or fixed dollar amount as a lump sum, and then the rest will come out as payments according to how you designate. For example if you had $50,000 and put a 50% restriction on it, your beneficiary could get $25,000 in a lump sum and then would get the remaining $25,000 in payments.

Different insurance companies will have different wording on their forms, but they can all pretty much accomplish the same thing.

You get to dictate how your IRA or other money is distributed from beyond the grave without having to pay a lawyer to set up a trust. You just fill out an additional form with your annuity contract.

It’s neat to think that your grandchildren could get a monthly check from you beyond the grave, and remember you every time they opened the envelope for years to come.

Or they could just get the lump sum and blow it on a trip to Las Vegas and a new Corvette.

Disclaimer. I am not an attorney. I realize that a restricted beneficiary form is in no way a substitute for a real trust if that is what you need. This is in no way meant to be legal advice.

Click here to learn more from this educator.

About the Author:

Carl Ostenson specializes in helping his clients use their IRA or 401k to set up their Retirement Income Plan for when they retire. He works with clients in the Chicagoland area and surrounding suburbs.

If you live in Chicagoland and want to talk about annuities with a local guy, give Carl a call at 847-376-8400… there’s never any pressure. To get more about Carl, visit:

Be sure to check out his Free IRA Guide titled “How to Get Secure and Predictable Income From Your IRA/401k When You Retire.”


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  • JIM says:

    Hi Carl
    Would love to use a Restricted Beneficiary Payout on an annuity
    but am concerned about it being sold for less than its value.
    I cannot find a company that would make it non transferable and non assignable, if you know of such a company I would love to hear of it. Thanks Jim

  • Michael D says:

    Carl, I see that some companies have the restricted payout option for an IRA. But, couldn’t my heirs just open an IRA at Fidelity and then ask for a rollover of the restricted inherited IRA? (So, same question as above–couldn’t an heir foil the restriction by selling the annuity or even easier to rollover an IRA!)

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