What is it? What kind
of benefit could it provide?
Provided by Benjamin Bogetto
Seemingly everyone has
heard of an IRA, but few people know about IRA trusts. Perhaps more people should, for an
IRA trust may provide a way to “stretch” IRA assets for decades to benefit
multiple generations.
An IRA trust is simply a
revocable living trust designed to hold IRA assets. It will continue to house them after
your death, but that will not prevent you from distributing those assets to
your heirs. This is because an IRA trust also contains one or more sub-trusts,
which can be designated and customized for your beneficiaries.1
At
your option, these sub-trusts can be made lifetime dynasty trusts (sometimes called generation-skipping trusts).
Dynasty trusts are complex, but they can potentially allow your grandchildren
and great-grandchildren to receive distributions of IRA assets. The
distributions may occur decades from now. That may be exactly what you prefer;
you may want to give your IRA assets to your grandkids when they are in their
forties instead of their twenties.1,2
Alternately,
you can draft the sub-trusts as accumulation
trusts or conduit trusts. An
accumulation trust accepts the Required Minimum Distributions (RMDs) from the
IRA, and the trust may only distribute them to the beneficiary at the
discretion of the trustee. A conduit trust can pay out IRA RMDs to the
beneficiaries as soon as the trust receives them (and as the trustee permits).1
IRA trusts are designed
to guard against two things happening to your IRA assets. If your children or grandchildren
just inherit your IRA, they could ask the IRA custodian to pay out its entire
balance to them in a lump-sum distribution. That would waste the chance to
“stretch” the invested IRA assets. In an IRA trust, a trustee oversees the IRA
assets, effectively serving as a barrier to such a decision. In addition, since
the IRA assets are parked within a trust, they are out of the reach of
“predators and creditors,” ex-spouses, and the courts.1,3
You
can also set up an IRA trust sub-trust as a special needs trust to benefit a
disabled adult. Funds from a special needs trust will not impact the government
assistance that person receives.3
Since
an IRA trust is a revocable living trust, you are free to revise its terms at
any point before your death (at which time the trust becomes irrevocable).1
You need a competent
estate planner to create an IRA trust.
An attorney designing one should be well versed in the specific legal
terminology pertaining to inherited IRAs. Omitting or misusing key phrases
could make the trust invalid or break IRS rules. Sub-trusts created within the
IRA trust need to be named as primary or secondary beneficiaries of the IRA
assets. As an example, naming the IRA trust as the beneficiary of your IRA is
inconsistent with the purpose of the sub-trusts.1,4
A properly structured
IRA trust can potentially “stretch” IRA assets for decades. If you have a large IRA and want your
IRA assets to be carefully distributed after you pass away, this estate
planning vehicle is worth exploring.
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities offered
through First Heartland Capital,
Inc. Member FINRA/SIPC
Bogetto Financial is not affiliated with First Heartland Capital, Inc.
Bogetto & Associates does not provide legal or tax advice. These topics are
discussed in conjunction with your CPA, Tax Advisor and Attorney.
Citations.
1 - thebalance.com/ira-trust-a-special-type-of-revocable-trust-for-your-ira-3505399
[6/25/16]
2 - fool.com/investing/2016/08/17/do-you-need-a-generation-skipping-trust.aspx
[8/17/16]
3 - thebalance.com/what-are-the-benefits-of-an-ira-trust-3505398
[6/29/16]
4 -
bankrate.com/finance/retirement/naming-trust-ira-beneficiary.aspx [1/14/16]
Financial Health...For Now & Tomorrow
Contact us Today
Website - www.bogettoandassociates.com
Telephone - 314-858-1602
Email - peter@bogettoandassociates.com
10805 Sunset Office Drive, Ste. 202
St Louis, MO 63127
Website - www.bogettoandassociates.com
Telephone - 314-858-1602
Email - peter@bogettoandassociates.com
10805 Sunset Office Drive, Ste. 202
St Louis, MO 63127
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