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People who have individual retirement accounts sometimes wonder if they should be placed in a trust to make certain an intended beneficiary will receive the proceeds. This is not always necessary, as a person who has an IRA can name another as the beneficiary of it.
There are some circumstances that make placing an IRA in a trust a good idea, however. If the beneficiary is a minor child or an adult child who has special needs, setting up a trust and naming it as the beneficiary of the IRA may make sense. The trust can then be used after death to manage the child’s affairs and pay for their expenses.
If an intended beneficiary is an adult child who does not have special needs, the trust may be helpful if it is set up to be a see-through trust. This would allow the adult child to pay taxes on the fund at his or her personal income tax rate, which will normally be lower than the rate paid by trusts. People should be wary about placing IRA or Roth IRA funds in a trust while they are living, as doing so may be counted as a taxable distribution.
Trusts can be set up in different ways to accomplish a variety of goals. When planning a trust, it is important for people to consider what their goals are and the potential tax consequences of different structures. Those who are wanting to set up a trust may want to discuss their goals and options with an estate planning attorney. An attorney may be better able to help select the type of trust best suited for his or her client’s goals and needs. In addition to trusts, an estate planning attorney might also recommend other types of estate planning documents to pass assets smoothly.