Saving for retirement is a priority for many people.  Individual Retirement Accounts (IRAs) can be used to fund your retirement and are a great way to ensure you take maximum benefit of these accounts provided by law.  You may be in a position where you have created a substantial IRA and now either want to be ready should you pass away before you get to use it or don’t intend on using it and hope to leave it to your loved ones.  If you are interested in achieving maximum long term, tax-free growth of your IRA for the benefit of the individuals you have left it to, an IRA Beneficiary Trust is right for you.

During your lifetime, an IRA Beneficiary Trust is a type of revocable trust.  This means that the trust comes into effect during the life of the grantor and can be adjusted to accommodate changing circumstances.  However, after your passing, it becomes irrevocable to ensure your wishes are carried through as you’ve intended.

How Does an IRA Beneficiary Trust Work?

A new trust is created to receive the proceeds of an IRA account.  The owner of the IRA, that wishes to leave it to a loved one, names the trust itself as beneficiary of the proceeds after his or her death.  After the creator of the trust passes away, the beneficiaries of the trust take only the required minimum distributions for their life time.  This allows the largest possible portion of the investments in the IRA account to continue to grow without being taxed.

Why is an IRA Beneficiary Trust Necessary?

In order for the funds to grow, the beneficiaries must leave them in the account.  Just leaving an IRA to your loved ones and hoping that they will use this technique is not enough to fully protect the asset.  Your beneficiaries could easily misunderstand the purpose and withdraw the funds all at once.  Without the trust, someone could convince them to take the money out and spend it.  The funds would also be susceptible to creditors, legal judgments and divorcing spouses without protections put in place by the trust.  IRA proceeds without trust protection also have an effect on government benefits such as Medicaid and Social Security Insurance.  A large inheritance could cause these benefits to be taken away.  The funds might also be exposed to a large estate tax when your beneficiaries leave the money to someone else.

All of these issues can be avoided using different techniques employed when creating an IRA Beneficiary Trust.  If the creator of the trust knows about the issues before hand, the trust can be created to protect from these types of claims.

The attorneys at OC Wills and Trust Attorneys are knowledgeable in the use of IRA Beneficiary Trusts and can help you determine if this type of trust makes sense as part of your estate plan.  Call OC Wills and Trust Attorneys at (949)347-5256 for a consultation today.