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Trust As IRA Beneficiary: Not Crazy

You may have heard that you can't name a trust as a beneficiary of your IRA—but in fact that is a perfectly legal option for IRA owners. But whether you should do it is a completely different story and requires further analysis.

IRAs can be complicated enough on their own without bringing a trust into the equation. And if you do name a trust as a beneficiary and then make a mistake with your account, the tax consequences could be devastating—so proceed with extreme caution. You'll need to work with an attorney experienced in these matters.

Why would you want to name a trust as your IRA beneficiary? It's not a tax-saving move and indeed could increase your tax bill. Still, there are valid reasons for using this planning technique. The primary benefit is protection against the IRA assets being squandered or attached by creditors. For example, you might want to pass money in an IRA to someone who is under age 21 and may not have much experience handling financial affairs or to a family member who is known to be a spendthrift. Having the account pass into a trust could enable a trustee to control how the money is distributed.

In a similar vein, you might intend to provide IRA funds to your spouse in a second or third marriage, but without shortchanging your children from an earlier marriage. In that case, you might leave the assets to a trust that pays out income to support a surviving spouse for life, with the remainder going to the children.

In any of these cases, naming a trust as your IRA beneficiary could be helpful—though, again, you'll need to work with an attorney with specialized knowledge of trusts and estate planning. Having the proper language in documents for the IRA and the trust is crucial.

One key aspect of such an arrangement is that the trust you name as IRA beneficiary should have people—and not an institution or your estate—as its beneficiaries. That could enable those beneficiaries to use "stretch IRA" planning techniques to lengthen the amount of time that assets can utilize an IRA's tax advantages. Although required minimum distributions (RMDs) still will have to happen, they'll be based on the life expectancies of the ultimate beneficiaries. The younger they are, the longer the money can be shielded from taxes. If more than one nonspouse beneficiary is named in a trust, the age of the oldest living beneficiary must be used. Consider separate trusts for each nonspouse beneficiary.

A variation on this theme calls for naming your spouse as the primary beneficiary and the trust as the contingent beneficiary. Such a setup provides greater flexibility because the surviving spouse may roll over the inherited IRA assets into his or her own IRA as part of post-mortem estate planning.



INDEX
  • ETFs Can Provide Some Other-Worldly Benefits To Investors
  • Trust As IRA Beneficiary: Not Crazy
  • Should You Fly Solo In Your Own 401(k) Plan?
  • Swap Munis To Your Tax Advantage
  • Sowing Tax Seeds For Capital Gains
  • With Fed's Mission Accomplished, Expect Rate Hikes And Low Bond Returns
  • Five Tax-Smart Ways To Transfer Your Wealth
  • Easier Rules On IRA Rollover Waivers
  • 4 Year-End Strategies For Investors
  • 6 Common Medicare Myths That Should Be Dispelled
  • 5 Key Documents In An Estate Plan
  • 10 Sensible Stock Market Strategies After A Fall
  • Be Aware Of Your Tax Surroundings
  • 4 Good Ways You Could Use An RMD
  • Take Early Withdrawals Penalty-Free
  • Life Insurance In Your Plan? Maybe
  • A New Direction For Your 401(k)?
  • Could Estate Tax Repeal Or Reform Become A Reality?
  • Taking Aim At Target Date Funds
  • Here's What You Can't Do In An IRA
  • 6 Common Estate Planning Myths: Here's The Reality
  • A Plunge, Snap Back, And A Goldilocks Economy
  • How To Avoid Emotional Portfolio Withdrawals
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  • Q & A With Robert Arnott
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  • Identity Theft: Everyday Prevention
  • Identity Theft: Help Is On Its Way
  • Identity Theft: Tips to Protect Yourself
  • Identity Theft: What Documents Should You Shred Or Store?
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
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  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
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  • What Is Risk?
  • How To Find A Great Financial Advisor?
  • Is It Time To Find A New Financial Advisor?
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
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  • Understanding Deflation
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  • Five Tips For Preventing Thefts From Your Checking Account
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  • Income Tax Planning For Investments
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  • When Do You Need Life Insurance
  • Year-End Tax Defferal Planning



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