In many cases, owners of Individual Retirement Accounts (IRA) will fail to use all of their funds and leave the remainder to their heirs. However, the account is subject to certain restrictions, including a minimum required distribution. Also, the new beneficiary may not understand the benefits of only withdrawing the minimum amount and letting the investments build up so that the money is stretched out.
Many IRA holders now create a trust in their wills, so that their IRA accounts are left to the trust with the heirs as the beneficiary. The trustee ensures that the money is distributed properly through minimum distributions. This ensures that the money lasts as long as possible and that the most is gotten out of the account.
The other benefit to creating a trust is that the trust provides protection from creditors or loss in a divorce.
The inheritor of the IRA will face the same tax implications that the original owner did, meaning the money received from the account will be taxed as income. But a major benefit of the trust is that the trustee will ensure that the account is not subject to IRS penalties for failing to make the required minimum distributions. However, it is important that the trust be set up by an experienced tax attorney and that the trustee be familiar with the tax law to avoid any possible tax penalties.
The laws regarding IRAs, wills and trusts, and taxes are all very complex and can be difficult to understand. It is important that a lawyer experienced in drafting wills and trusts as well as in tax law assist you in creating an IRA inheritor's trust so that all tax penalties are avoided. A lawyer can also explain all your options and help you understand what types of wills or trusts are right for you and your family.
Last Modified: 05-14-2012 11:41 AM PDTLaw Library Disclaimer
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