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

How to protect heirs with an IRA trust

New York residents are generally allowed to pass money inside of an IRA to designated beneficiaries. However, for those who are worried about how that money may be used, an IRA trust may be an effective estate planning tool. They have become more popular since a 2014 Supreme Court ruling that no longer treats inherited IRAs as protected in bankruptcy. Instead of naming a person as the beneficiary of the IRA, the trust is named the beneficiary.

A trust may be used whether a person has a traditional or Roth IRA. They may be most effective for those who have a large amount of money in the account as well as for those who name a minor as a beneficiary. While minors cannot directly inherit property, they may be able to do whatever they want with the money after turning 18 or 21. This is in spite of the fact that a young person may have no idea how to manage that money.

No matter what the money is used for, a withdrawal from an IRA is almost always treated as a taxable event. When done correctly, creating an IRA trust means that the trustee is in control of how money is distributed. This may make it easier to maximize the tax advantages of an IRA while also creating a solid financial future for an heir.

A trust may be an effective estate planning tool that may help to preserve wealth. Trusts may may allow for a beneficiary to make use of an asset in a manner that deemed to be worthwhile. For instance, the money may be earmarked to pay for college expenses or a wedding. Those who already have a trust may wish to have an attorney review it periodically to ensure that it still meets their needs.

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