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IRA in trust: Is there a tax burden that will effect trustees on death of owner? IRA have to be liquidated?

Denver, CO |

Financially, Should an IRA be outside trust and retitled by beneficiaries?

Attorney Answers 3

Posted

An attorney can put stretch language in the trust so that the taxes would not be due once the IRA is left to the trust.
Most IRA's are outside the trust if left directly to beneficiary.
An experienced estate planning attorney can assist with this type planning.

The answer given does not imply that an attorney-client relationship has been established and your best course of action is to have legal representation in this matter.

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Posted

As Mr. Pippen mentioned. The trust can have stretch language in it. However, the distributions MUST use the oldest beneficiary's age to determine distribution amounts - period. Thus stretching is usually not maximized if there is more than one beneficiary - and another method of transference should be used unless control is the primary variable of concern for the IRA owner.

The trustee is not affected by any taxes unless the trustee is also a beneficiary. However, you NEED to makes sure that the trust is the designated beneficiary of the IRA account, or you will have to liquidate within 2 years and the IRA will never get to the trust. This is vital

Finally, make SURE you use a CPA who has training in IRA taxes. The Obama administration has reportedly pushed the IRS to crack down on retirement plan taxes. So watch out.

Matthew Johnson phone# 206.747.0313 is licensed in the State of Washington and performs bankruptcy, short sale negotiations, and estate planning in Whatcom, Skagit, Snohomish, King and Pierce counties. The response does not constitute specific legal advice, which would require a full inquiry by the attorney into the complete background of the facts and circumstances surrounding this matter; rather, it is intended to be general legal information based on the limited information provided by the inquirer; it This response also does not constitute the establishment of an attorney-client relationship, which can only be established after a conflict of interest evaluation is completed, your case is accepted, and a fee agreement is signed. Johnson Legal Group, PLLC

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Posted

This is a very complicated area that absolutely needs to be addressed as part of your estate plan. Many people do not understand that coordinating beneficiary designations (for retirement plans as well as life insurance) can be just as important as your will or revocable trust, especially if you have estate tax planning in your primary estate planning instrument.

Particularly if you have young beneficiaries, you want to make sure each can use the income tax "stretch out" offered by an inherited IRA,but you still need the account to be managed by a trustee. This requires very specialized drafting to assure that each beneficiary's separate trust is considered for IRS purposes as a "designated beneficiary," thus qualifying for a stretch out of the required minimum distributions based upon the trust beneficiary's life expectancy. This deferral of income tax payment have very significant income to advantages, but the consequences of doing it wrong can be extremely expensive.

Sometimes it can be quite a struggle to get a plan administer to accept the beneficiary designation necessary to reap the best results. This is NOT a do-it-yourself area!

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1 comment

James P. Frederick

James P. Frederick

Posted

Very well stated and accurate response!

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