Mullen and Iannarone, P.C.
Serving the legal needs of corporations, individuals and
families of Suffolk County since 1972

New York residents protect IRAs with trusts

For many New York residents, their most valuable asset is their IRA or other retirement account. Therefore, it is often prudent for individuals to find ways in which they can pass these assets to the individuals of their choice.

Many times, trusts can be used for this purpose. The current rules for an inherited IRA require a beneficiary's age to be factored into the minimum distribution calculation if the beneficiary is not a spouse. This approach allows such beneficiaries to extend their minimum distributions for their entire lifetime. When an IRA is transferred from one generation to the next, the fund may increase in value, sometimes up to four or five times. However, each distribution is taxable for spousal IRAs. Additional restrictions require non-spouse beneficiaries to receive payout within one year of the principal's death in the case of corporate or governmental retirement accounts. Funded retirement inheritance trusts can sometimes avoid these negative aspects.

When a person directly passes an IRA to a beneficiary, the passing often leaves the beneficiary vulnerable. The wrong person may inherit it due to an outdated form. The beneficiary may be guilty of careless spending. The beneficiary's spouse could receive a portion of the proceeds through divorce. A beneficiary may not be approved for certain governmental benefits because of the possession of the account. Trusts that are specifically created for this purposecan help avoid these situations and protect the trust from being lost through creditor collections, divorce or bankruptcy.

Individuals who would like to know their options regarding how to pass on an IRA or individuals who suspect that they may receive an IRA if their loved one passes may wish to consult with an estate planning attorney. Legal counsel can often explain the advantages and drawbacks of this type of instrument.

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