Is there an advantage to putting an IRA in a Community property Trust
Just found out there is something callled a community property trust that seems to alow common law state residents to receive 100% basis step up on first to die which seems like a good idea for regular brokerage assets, and houses and probably some other assets.
We moved from a community prop state to a common law state , married 40 plus years.
From the viewpoint that we are now in a common law state.
1) is there any advantage to putting our IRA’s in a community property trust?
2) Any downsides as far as stretch goes or liability protection etc?
Permalink Submitted by Alan - IRA critic on Mon, 2021-05-03 18:00
No, an IRA cannot be owned by a trust. They must be maintained as individual accounts in an individual’s name. And there is no basis adjustment for tax deferred accounts such as IRAs anyway.
While you lived in the CP state, despite the IRA being restricted to an individual spouse, the other spouse maintained a potential community property interest in the IRA. Therefore, if the owner decided to name a non spouse beneficiary in the CP state, the other spouse would typically have to sign a waiver.
In the common law state, if you are naming a non spouse beneficiary, your spouse “MAY” have some residual claim to at least half the balance that was funded by CP income. If you are in this potential scenario, you would have to check the CL state statutes to determine if there is any possibility of such a claim. If you are naming your spouse as beneficiary, then no action is needed.
On the general subject of IRA creditor protection, this is a state by state issue. Check the creditor protection in the CL state from an IRA asset protection site. Most states do provide good creditor protection for owned IRAs (but not so for beneficiary IRAs). In fact, one of the worst states for creditor protection for IRAs is CA, a CP state.