Designating a Trust as the Beneficiary for Your IRA

With the Social Security Income program practically in ruins, most people are not counting on SSI to fund their retirement; this is why programs like IRAs have become very popular in recent years. When designing your IRA, you may have many questions about IRA trusts and IRA beneficiary trusts. Designation a trust as a beneficiary of your Individual Retirement Account can have big benefits and can be a very effective asset planning tool but can also come with major consequences if the provisions are misunderstood.

Understanding an IRA and IRA Trusts

An Individual Retirement Account, as the name suggests, is a type of savings account that allows people to save up for their retirement. The funds in this type of account are meant to be put away safely until the account holder reaches a designated age; although you can withdraw early but that will come with big penalties. These kinds of accounts are popular with those who are not employed at a company that offers 401K plans or have too many contingencies associated with the accounts. An IRA trust is commonly a part of larger IRA accounts, mainly those with over $200,000 worth of deposits, and is designed to hold the remaining funds in your IRA after your passing. An IRA trust can contain different sub-trusts made to benefit spouses or children separately.

When IRA Beneficiary Trusts Are a Part of Planning

You may now be wondering why someone would need to designate a trust as the beneficiary to their IRA account, but it can be a very important part of IRA planning. In order for someone to have control over the account should you pass before the funds are used up, you must name a beneficiary. Designating a trust as the beneficiary may actually control the way the money in the account is spent – for example, if the beneficiary poses a risk of spending the funds on things you simply don’t want them to spend them on, the trust offers protection. Designing your IRA in this way usually means that your funds go towards something specific like housing, education, or payments of your final expenses. Another scenario that might prompt these provisions is if the IRA holder wants to make sure the funds in the account are made available to children, especially if the spouse is not the parent to those children. Contacting a competent attorney is always recommended when you are naming a trust as a beneficiary for your IRA.

Need Help?

If you are not sure as to what legal document you currently have contact one of our professionals to help you with your estate planning. They will make sure you have all of your grounds covered and have the right legal documents that best suite your wants and needs.