Naming a trust as an IRA beneficiary has become a popular estate planning tool in recent years.* There are many advantages to using an IRA Trust:
Control. When an individual wants complete control over how their money will be distributed after they pass, a trust as an IRA Beneficiary will make certain that assets are distributed according to the trust’s guidelines. This can be ideal when giving to young beneficiaries or when leaving assets to those with special needs.
Spendthrift threat. If an IRA owner suspects an heir will waste their inheritance, an IRA beneficiary trust will prevent the beneficiary from receiving assets in a lump sum or spending the money carelessly. Using an IRA beneficiary trust will allow the IRA owner to state exactly how and when the heir will be able to spend the money. (For example, this could be for educational expenses only or when the heir reaches a certain age.)
Creditor protection. Assets in a trust will not be subject to creditor claims; this means an IRA owner can rest assured that assets will continue to be available for their heirs regardless of creditor issues that may arise in the future.
There are requirements for trusts to be accepted as beneficiaries of an IRA, such as: The trust must be valid under state law and the IRA account owner must make certain the beneficiary designation forms appoint the trust. Also, there are unique tax requirements that apply to trusts. It is important to find a North Carolina estate planning attorney with extensive experience in IRA trusts to correctly draft the appropriate forms. Beneficiary designation forms will always trump instructions in a will or trust.
*Greg Herman-Giddens of TrustCounsel will instruct a national teleconference“IRA Beneficiary Trusts and Post-Death Administration” on June 6, 2013 from 1PM-2:30PM EST. The encore presentation reviews important information specific to IRA beneficiary trusts, a few of which include critical deadlines, measuring lives for Required Minimum Distributions, and how to manage problems with defective designation forms. Continuing Legal Education Credit is available. Registration information here.