Aug 8, 2017

Posted in Inheritance

IRA Inheritance Trusts in Virginia

If you have contributed to an Individual Retirement Account (IRA) over the years, you may want some element of control over how your retirement account assets are distributed after you pass. IRA inheritance trusts provide that level of control and can be an effective estate planning tool, providing certain measures are taken in the planning process.

What is an IRA inheritance trust?

An IRA Inheritance trust is when the individual retirement account (IRA) owner designates a trust as the beneficiary of the retirement account, so that the trust will inherit the funds at their death. An IRA owner can designate whomever they wish as the beneficiary of their retirement account, but if you are contemplating naming a trust as the beneficiary, there are considerations to doing so. It is important to consult with an estate planning professional to prevent this designation from causing problems for those inheriting the assets.

Naming an IRA beneficiary

While you can name anyone a beneficiary of your IRA, the Internal Revenue Service has certain laws governing the distribution of the assets. After the original owner of the IRA dies, the beneficiary must take required minimum distributions (RMDs), which can be drawn out slowly over the beneficiary’s life expectancy. This “stretching out” of the IRA distributions allows the funds years of additional income tax deferred growth. But what happens when the IRA beneficiary is a trust? These required minimum distributions cannot be spread out over the life expectancy of something that isn’t alive, so – unless certain steps are taken – this designation can mean that the distributions cannot be stretched out after the original owner’s death. The trust still receives the money, but the payout may be required within five years.

When a trust is the IRA beneficiary

In certain circumstances, the Internal Revenue Service (IRS) allows IRA inheritance trusts to be treated as designated beneficiaries, thus making them eligible to draw out post-death RMDs over life expectancy. In those situations, the IRS looks beyond the named trust to the underlying beneficiaries and uses their life expectancies as the basis for the RMDs. This is called the “see-through” method. It is important to note that to qualify for this treatment, the trust must be drafted in a certain way, including using appropriate terminology. As with any investment vehicle, there are pros and cons of IRA inheritance trusts and they should be evaluated in the context of overall financial and estate plans.

IRA Inheritance trusts are complicated, so trust our skilled Maryland trust and estate planning attorneys to guide you

Designating a trust as the beneficiary of your Individual Retirement Account (IRA) can be a strategic estate planning tool that provides an element of control over the distribution of your assets. However, it is in your best interest to consult with an experienced estate planning professional to ensure that establishing an inheritance trust is appropriate, given your financial goals. We formulate the trust so your estate planning needs are maximized. At Altman & Associates, estate planning is all we do. For more than 40 years, our Maryland trust and estate planning attorneys have worked with individuals and families to design estate plans to help them achieve their long-term financial goals. If you are considering an IRA Inheritance trust, contact a member of our team today at 301-468-3220 or contact us online to schedule a consultation to discuss your estate planning needs. We have convenient offices in both Rockville and Columbia.

Share this page!

Leave a Reply

You must be logged in to post a comment.