Choosing a trust as an IRA beneficiary

On Behalf of | Sep 7, 2021 | Estate Planning |

With wise investment choices, consistent contributions and time, an individual retirement account (IRA) can grow into a sizeable asset. When a person creates an estate plan, he or she can choose to designate a trust as the beneficiary of the IRA.

This allows the person to retain control over the distribution of the assets after death and it may also offer some tax benefits. In addition, one of the benefits of naming the trust as the beneficiary of the IRA is that the funds are protected from creditors.

Requirements

In order to designate the trust as the beneficiary of the IRA, there are a few requirements that must be met first. The trust must be valid under Texas law, it must be irrevocable, the trust’s beneficiaries must be individuals and the trustee must provide a list of the beneficiaries to the IRA’s custodian.

IRA distributions

The IRA owner may want to ensure that the assets are not used improperly and want the funds to be distributed over time instead of in a lump sum. The IRA owner can require that the funds are used for a specific purpose, such as to pay for the recipient’s education. Then, the trustee is responsible for managing the trust according to those provisions.

The trust can provide benefits to an owner’s children and grandchildren for their lifetime. It’s important that the trust is drafted correctly so that it is effective and reflects the IRA owner’s wishes. If an IRA owner needs assistance with this or with other estate planning matters, assistance is available.

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