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IRA Beneficiary Trusts

A properly drafted standard revocable trust can be the beneficiary of an IRA- the key words being”properly drafted”. Using a trust as the beneficiary can be very helpful if the Grantor is concerned about asset protection for his or her beneficiaries. The US Supreme Court has ruled that, unlike normal IRA Beneficiary Trusts, inherited IRAs are not protected under the Bankruptcy Code and may not have protections from creditors in other situations. A trust with “spendthrift” provisions will provide protection from most creditors.

While a standard revocable trust that has other assets can be the beneficiary of IRAs, sometimes it is preferable to have a separate standalone IRA Beneficiary Trust. Such a trust can not only protect the assets – perhaps even from the beneficiary’s misuse- but also can provide tax savings and greater accumulation over the lifetime of the beneficiaries.

Facts that would determine which kind of trust, or even if a trust of any kind is needed for the IRA, would include the total value of the IRA and the ages of the beneficiaries.

This is too complex a topic to go into fine detail in a newsletter but if you have a large IRA (or 401 (k), 403 (b), etc) and you have concerns about asset protection for your beneficiaries or if you have beneficiaries that have widely disparate ages, please call the office.

About the Author

Dwight Sowerby