Establishing an individual retirement account (IRA) trust is an effective way to pass your assets on to your family and beneficiaries. However, you must designate beneficiaries when you set up your IRA. Otherwise, your IRA could be subject to intestate laws. By setting up an IRA trust, you can ensure beneficiaries use the remaining retirement funds as you intended. Consider getting answers to your estate planning questions and help setting up your IRA and IRA trust by contacting our California estate planning attorneys at Von Rock Law. You can schedule your confidential case evaluation today by calling our office at (866) 720-0195 or filling out our secured contact form.
Why Set Up an IRA Trust?
An IRA trust can be a great financial asset for both you, and your beneficiaries. Setting up an IRA trust allows you to ensure that your financial assets are distributed exactly according to your intentions.
IRA trusts are also known as IRA inheritors trusts, IRA stretch trusts, or IRA living trusts. No matter how they are named, IRA trusts provide substantial financial benefits. Some of the most important advantages that occur when an IRA trust is established includes:
- Protecting your beneficiaries from creditors
- Protecting your heirs from wasting the trust assets
- Reducing tax liabilities for you and your beneficiaries
- The ability to name minor children as beneficiaries
Protect Your Assets During Your Lifetime
An IRA trust allows you to safeguard your assets during your lifetime. Creditors are unable to reach the assets held in an IRA trust, which is why it is a useful financial tool and an important part of a comprehensive estate plan for many.
Protect Your Beneficiaries from Themselves
Many people worry about how the efforts of their hard work will be spent by others after they are gone. By setting up an IRA trust, you can help protect your beneficiaries from their lack of money management skills or poor spending habits. When the assets are not passed down to beneficiaries directly, they do not have the opportunity to spend the wealth you left them quickly.
When you set up an IRA trust, you can include specific restrictions that determine how the assets can be spent, when money will be distributed, and at what age your beneficiaries can access the assets. For example, you can set restrictions allowing beneficiaries to use the assets to purchase homes, cover healthcare expenses, or prevent them from accessing benefits until they graduate from college.
Reduce Tax Implications
One of the top benefits of setting up an IRA trust is to reduce tax implications. Although setting up a traditional IRA means that you are currently benefiting from tax-deferred or tax-free growth depending on the type of IRA you set up, when your beneficiaries receive IRA contents directly, they can wind up facing substantial tax implications the year they are withdrawn.
By setting up an IRA trust, you can ensure the assets are only withdrawn at specified periods so you can protect your beneficiaries from paying taxes on the total amount of the IRA. The tax implications of an IRA trust can be complex and challenging. Visiting with an experienced attorney can help you understand your legal options and ensure your financial rights remain protected.
Name a Minor as Your IRA Beneficiary
If you are hoping to name a minor child as the beneficiary of your IRA, setting up an IRA trust is important. Without a trust, you need to designate a conservator to manage the IRA until the minor child reaches 18 years of age.
Then, once they reach 18, they will have access to all the funds within the IRA. If withdrawn too early, they could wind up facing massive tax implications.
Disadvantages of IRA Trusts
Although there are many advantages of IRA trusts, there are also some disadvantages worth discussing. Visiting with an experienced estate planning attorney can help you understand your options given your specific circumstances. Some of the most notable disadvantages include the following:
- IRA trusts may face accelerated withdrawal requirements, typically within five years of death.
- In some cases, IRA assets must be withdrawn within ten years due to IRS regulations.
- If the IRA trust assets are large, it is possible it could be considered a burden to beneficiaries.
- IRA trusts include a detailed amount of paperwork
Although there may be several disadvantages of IRA trusts, by working with a knowledgeable and experienced estate planning attorney, and your accountant, you can set up your retirement savings accounts and your beneficiaries up for success from the start.
Reducing tax implications, setting distribution parameters, and avoiding probate is well worth the effort. However, if you are still deciding whether setting up an IRA trust is the right option for your estate plans, feel free to discuss your concerns with your estate planning lawyer at Von Rock Law.
Is an IRA Trust the Right Fit for You? Call Von Rock Law to Find Out
The benefits of an IRA trust are undeniable. But that does not necessarily mean they are the best option for you and your estate plans. You can further discuss your family’s specific situation and financial goals to determine how to set your beneficiaries up for success upon your passing.
Consider visiting with our experienced and dedicated California estate planning attorneys at Von Rock Law to discuss your options further. Schedule your initial consultation today when you fill out our confidential contact form or call our office at (866) 720-0195.
