Chipman Mazzucco Emerson LLC

Why and how to name a trust as an IRA beneficiary

It is possible that an individual in Connecticut won't spend all the money in his or her IRA before passing. Therefore, individuals should create a plan to determine who would get the unspent funds. There can be many benefits to naming a trust as the beneficiary to an IRA account. For instance, the trust can designate who gets the funds and when they are to be distributed. That may provide a layer of oversight for those who may not manage their money properly.

Naming a trust as a beneficiary can also be helpful for those who are planning on leaving an IRA to a minor. Money inside of a trust is generally off-limits to creditors, which means that family members who are in debt may not be at risk of losing their inheritance. However, it may not be a good idea to leave an IRA to a trust if the money is going to a spouse.

The same may be true if an individual's account is worth less than the cost of the trust itself. To be considered a valid decision, funds must be placed in an irrevocable trust for the benefit of an individual. A list of beneficiaries must be provided by the trustee to the IRA account custodian by Oct. 31 of the year following an individual's death.

The use of an irrevocable trust may make it easier to shield assets from creditors or other interested parties. However, it may also force a person to yield control over an asset or how it is used. Individuals might want to discuss the benefits and drawbacks of creating such a document with an estate planning attorney. An attorney may be able to help create an irrevocable trust that conforms to state law.

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