IRAs in trusts
I have a question regarding revocable trusts and IRAs – Under normal circumstances, no spend thrift issues or special needs children, what is the advantage if any of naming the beneficiary of an IRA a trust? What is the pit falls of naming a trust a beneficiary of an IRA. I have been asked the question on occasion and have never really had a good answer to it.
Permalink Submitted by Bruce Steiner on Wed, 2012-07-11 01:54
You might leave IRA benefits in trust for the same reasons you might leave any other assets in trust rather than outright. It keeps the assets out of the beneficiaries’ estates, and provides better protection against creditors. For more information, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf
While revocable trusts make sense in some cases, and in some states, they are overhyped and oversold, and in most cases not worth the effort. Even where a revocable trust makes sense, running an IRA through a revocable trust can create lots of problems.
Permalink Submitted by Eric Woodfill on Wed, 2012-07-11 16:02
thank you
Permalink Submitted by mk foss on Wed, 2012-07-11 18:49
I see no reason for a single person with adult beneficiaries to name a trust as the IRA beneficiary in most cases.
If the beneficiaries have creditor problems or spend thrift problems, a trust is perfect. If the beneficiary is a minor, the trust also works well.
Not all married people need to name a trust as a beneficiary but it can ease trust funding in a community property state and can be helpful in a second marriage situation. A trust can also provide funds for paying some post death taxes and liabilities if there is no other ready source – this purpose needs expert drafting.
Permalink Submitted by Charles Bleam on Wed, 2012-07-11 19:13
My aunt’s husband just passed away and they have his IRA naming the Trust as beneficiary. She has adult
children that are her beneficiaries and no issues with spend thrift etc. When she passes wouldn’t the IRA
loose the benefits of stretching out payments when it is paid out to the trust? My understanding is that
when the IRA distributes to the trust that will trigger a tax situation as a distribution.
Permalink Submitted by Bruce Steiner on Wed, 2012-07-11 21:55
Depending upon the terms of the trust, it may be possible to stretch the distributions over the life expectancy of the oldest beneficiary of the trust. See my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf