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IRA Beneficiary Trusts

Tax Deferred Retirement Plans, such as tax-deferred Annuity Contracts, 401(k) Plans, 403(b) Plans, IRAs, pension plans, profit-sharing plans, or other company-sponsored retirement plans, may be eligible for an inherited rollover, which only an individual can do, and a Trust cannot. To maximize tax benefits, your Trust should include “Conduit Trust” provisions.

Depending on your specific circumstances, it might be appropriate to name individuals, rather than your living Trust as the “pay on death beneficiary” for these assets. However, the named beneficiaries may choose to “cash out” the IRA, at which time they will pay a very hefty tax.

Alternatively, a Revocable IRA Beneficiary Trust can be set up and named as the beneficiary of such retirement accounts. This trust is also appropriate when the intended IRA beneficiary is a minor: the IRA Trust allows the assets to be immediately available for the care of the minor beneficiary, rather than frozen until the minor reaches age of majority (18) and can access the accounts, or rather than having to establish a Guardianship Estate for the minor beneficiary so as to access the funds for his/her benefit.

The IRA assets are protected in Trust by way of spendthrift provisions (which block access to the funds by the beneficiary’s creditors). And, the assets will be subject to RMDs (required minimum distributions) that will be stretched out over the life expectancy of the beneficiary. Also, the Trust will name contingent beneficiaries to ensure continuity in the event the main beneficiary dies to his or her own descendants.

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