5 Reasons to Create an IRA Trust

millman law group create an IRA trust

Learn why you should create an IRA trust as part of your estate plan.

Trusts are a crucial estate planning tool that allows individuals to protect and preserve their wealth so that it can be passed onto the next generation. Individual retirement accounts (IRAs) can also be used to grow assets without income tax and ensure a transfer of those assets to the following generation. As more people have learned how beneficial IRAs can be, it has become common to name trusts as IRA beneficiaries to combine the advantages of IRAs with the advantages of trusts

When you create an IRA trust in which the trust is a beneficiary of an IRA, the trust inherits that IRA when its owner dies. The IRA is then maintained as a separate account that is considered an asset of the trust. There are a few reasons why you might consider naming a trust as an IRA beneficiary instead of an individual. 

You Can Work Around Beneficiary Ownership Limitations 

The intended beneficiary may be a minor who is legally unable to own an IRA. Or, the IRA owner wants to use their money to support an individual with special needs, but this person will lose access to government benefits if they own assets under their name. 

A solution in these cases could be to create an IRA trust as the IRA beneficiary. This trust then becomes the legal owner in place of the minor or person with special needs. 

A Solution for Second Marriages or Other Family Structures

An IRA owner may wish for RMDs (required minimum distributions) to benefit their second spouse during their lifetime and then have the remainder of the IRA pass to children from their first marriage. However, if the IRA owner leaves the IRA outright to their spouse, the spouse will benefit, but there is no guarantee that the children will. If the original IRA owner leaves the IRA to a trust, both beneficiaries can receive the intended assets. 

Limit a Beneficiary’s Access

IRA beneficiaries are often considered to only take the required minimum distributions. However, an individual who has inherited an IRA can take larger distributions or even withdraw the entire balance. However, when you create an IRA trust, the access of a beneficiary of the trust will be subject to the trust’s terms. This can limit how much they can withdraw from the IRA at a time.

You Can Name Successive Beneficiaries 

When a single IRA beneficiary inherits an IRA, she can name her initial successor beneficiaries. If the IRA owner wants to control the successor beneficiary of their IRA, they will need to set forth the succession terms in a trust and then name the trust as the IRA beneficiary. This can control who ultimately gains from your original IRA. 

Create an IRA Trust to Provide Creditor Protection 

A person’s IRA has some protection from creditors, but that does not always carry through to the inherited IRA. When you create an IRA trust, you increase the likelihood that the structured trust will not be considered an asset of the beneficiary and will have some protection from creditors. 

Estate Planning Made Easy With Millman Law Group

Millman Law Group, PLLC is rare because it’s one of the only law firms that offer life planning in South Florida. From life care planning to the preparation of detailed estate plans, Millman Law Group has committed to serving Floridian elderly communities in Boca Raton, Palm Beach County, Ocean Ridge, Hillsboro Beach, and many other areas since 2018. Our dedicated team also specializes in special needs trusts and catering to any age demographic because we know for certain it’s never too early to start preparing you and your family for your future. For the latest news in estate planning and elder care law, follow us on Facebook, Twitter, Linked In, and Pinterest. You can also contact us at 561-463-6480.