Annuities and Retirement Benefits
You may be entitled to receive some type of retirement benefit under an employee benefit plan offered by your employer or have an Individual Retirement Account (IRA) or a Roth-IRA. Typically, a deferred compensation or retirement benefit plan provides for the payment of certain benefits to beneficiaries designated by the employee in the event of the employee's death before retirement age. After retirement, the employee may elect a benefit option that will continue payments after his or her death to one or more of the designated beneficiaries. It is sometimes advantageous to have these plan assets paid to trusts, but naming a trust as the beneficiary of such plan assets raises a number of complex income tax, estate planning and other issues. Naming the surviving spouse as the beneficiary of certain retirement plans and spousal annuities is mandated by law and may be waived only with his or her properly signed consent. Competent estate planning counsel is crucial.
If you are entitled to start receiving retirement benefits during your lifetime, the various payment options will be treated differently for income tax purposes. You should seek competent advice as to the payment options available under your retirement plan and the tax consequences of each.
source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/an_introduction_to_wills.html
