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IRAs, beneficiary designations and trusts

The typical way retirement assets are passed on after a person's death is through beneficiary designations. As we discussed in a previous post, one of the options individuals with retirement assets generally have when it comes to beneficiary designations is to name a trust as the beneficiary. It is important to note though that there are certain retirement assets for which this beneficiary designation option can raise some special concerns.

Take individual retirement accounts for example. A variety of issues can arise in relation to naming a trust as a beneficiary for an IRA. For one, making such a beneficiary designation, when done without proper care, could end up triggering some rather severe tax consequences.

Given the potential challenges than can come up in relation to this type of IRA beneficiary designation, a person generally should be very careful to make sure that, if they are going to have a trust be named as an IRA beneficiary, doing so would actually be able to achieve the goals they want it to. While there are some goals this type of beneficiary designation can help further, there are others it is generally not very well suited to help with, like the goals of tax reduction and asset distribution simplification. Estate planning attorneys can answer questions individuals who are considering this type of beneficiary designation have on whether it would be able to help with their particular goals for the after-death handling of their IRAs.

Another thing that can be important when one decides to designate a trust as an IRA beneficiary is ensuring the trust is structured correctly. The details and structure of the trust named as beneficiary can impact what the ramifications of designating the trust as beneficiary will be and what things the trust will ultimately be able to do. Attorneys experienced with trust matters can give individuals guidance on what type of trust structure and terms would be best suited for their particular circumstances.

As this discussion on IRAs, beneficiary designations and trusts underscores, estate planning decisions can end up having some big consequences. Thus, when making big estate planning decisions, it can be very important for a person to understand the potential ramifications of the different available options and what options are the best match for their goals.

Source: Bankrate, "Naming a trust as your IRA beneficiary," Sheyna Steiner, Accessed Jan. 21, 2016

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