From our “Ask a Question” Mailbag: IRA Trusts and Descendants

Most Recently Updated August 9, 2018.

“Can an IRA Trust ensure that the estate passes to your direct descendants?”

Estate Planning Attorney, Peter L. Klenk

IRA Trusts and Descendants

The IRA Trust, An Underutilized Estate Planning Tool.

When assembling an Estate Plan, too often the plan forgets to address Estate Planning for IRAs. The IRA, or other qualified plans, often make up a large portion of the estate. Forgetting to include the IRA in the estate plan can lead to tax adverse consequences.

To ensure that your money passes on only to your direct descendants, consider forming an IRA Trust.

All qualified plans (IRA, Roths, 401ks, SEPs, TIAA-CREF, etc.) allow you to name a beneficiary to receive the plan at your death.  But, if this person is your child, they will have the chance to defer income tax recognition by converting the plan into an “Inherited IRA”.  BUT, with an “Inherited IRA” your child, not you, has the ability to name a beneficiary.   And it is likely this beneficiary will be your daughter-in-law or son-in-law rather than your grandchildren.

With An IRA Trust, You Control Who Inherits the IRA at Your Child’s Death.

By forming a well crafted IRA Trust for your child and naming this IRA Trust as the beneficiary of the qualified plan at your death, the trust will own the IRA for your child’s benefit.   Thus, the Trustee can elect to stretch the IRA over your child’s lifetime.  This provides the exact same income tax benefits that your child would have received as the owner. But, the IRA is held under the IRA Trust’s tax ID, not the child’s social security number.  The Trust owns the policy, not your child.

This is beneficial because if you form the trust, YOU have the power to name the beneficiaries that follow your child. If you prefer the funds stay in your bloodline, you can name your grandchildren. At your child’s death, the funds are then immediately available to provide care to your grandchildren.  This excludes your daughter-in-law or son-in-law.

See My Website for more Information about IRA Trusts.

More Planning Questions?

IRA Trusts and Descendants is only a piece of the Estate Planning process. By all means, if you want to learn more, please read my more detailed article, Estate Planning Everything You Need to Know.

In Conclusion: IRA Trusts and Descendants

I hope that this article was helpful in explaining IRA Trusts and Descendants. Further, I included links to even more detailed information on my website so you can learn more. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Estate Planning lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced estate planning lawyers.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

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