Who Benefits from an IRA Inheritance Trust?

Most people associate wills with estate planning, but there are other strategies to help plan for the future health and financial well-being of you and your family. Using an IRA inheritance trust is one such strategy that may be beneficial to you and your loved ones.

The majority of the time, the money held in an IRA account will be distributed to the person you list on the beneficiary designation form. This is one of the forms you will fill out when you open or amend an IRA account. Not many people are actually aware that you do not necessarily have to name an individual as the account beneficiary. You may list a trust as the beneficiary. This trust is what is referred to as an IRA inheritance trust.

When considering whether or not to utilize an IRA inheritance trust, you really need to think about who would benefit from establishing such a trust. This means considering who would be the designated beneficiary of the IRA proceeds. An IRA inheritance trust can be very beneficial if you are considering designating an IRA beneficiary who may:

  • File for bankruptcy;
  • File for divorce (where their former spouse would become a creditor); or
  • Have creditors.

Basically, if you are considering leaving the money in your IRA to a loved one who has or may have financial or creditor issues, an IRA inheritance trust is a very good option to consider. The trust will protect the IRA proceeds from creditors so that your beneficiary can continue to enjoy the benefits of the savings you have left them.

An IRA inheritance trust is also a good idea if the intended beneficiary may have problems managing money. You may create a trust with terms controlling the cash flow to the designated beneficiary. You may also want to limit access to the money held in the IRA until the intended beneficiary reaches a certain age.

Like many estate planning tools, the IRA inheritance trust had the potential to be very beneficial when used in the right circumstances. Consult with a knowledgeable estate planning professional to make sure this type of trust is right for you.

Posted in: Estate Planning