NOTE: State laws change frequently and the following information may not reflect recent changes in the laws. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
If you have significant assets in an IRA, then you should consider setting up a special type of revocable living trust that is specifically designed to be the beneficiary of your IRAs after you die. This type of trust is referred to by several different names, including an IRA Trust, IRA Living Trust, IRA Inheritor's Trust, IRA Stretch Trust, IRA Inheritance Trust or Standalone Retirement Trust.
How Does an IRA Trust Work?
An IRA Trust is a special type of revocable living trust that is designed to hold your IRA accounts for the benefit of your loved ones after your death. Within the IRA Trust agreement you will establish different subtrusts for the benefit of your beneficiaries, including your spouse if you are married.
When drafting the IRA Trust agreement, you can design each subtrust to fit the needs of each beneficiary. For example, you can choose to either have the required minimum distributions held inside of the IRA Trust which means the funds can only be used for the benefit of the beneficiary as determined in the discretion of the Trustee (an accumulation trust), or you can chose to have the required minimum distributions paid out to the beneficiary at the time the trust receives each distribution (a conduit trust).
In addition, if you want to create a lasting legacy for your family, then the subtrusts established within the IRA Trust agreement can be set up as lifetime Dynasty Trusts that can continue for many years into the future.
Finally, since the IRA Trust is a revocable trust, you can change the terms of any or all of the subtrusts at any time prior to your death.
Naming the IRA Trust as the Beneficiary of Your IRAs
In order for the IRA Trust to work as planned, you cannot simply name the "John Doe IRA Trust" as the beneficiary of your IRAs. Instead, the different subtrusts established within your IRA Trust agreement will need to be specifically named as the primary beneficiary and/or secondary beneficiary of your IRAs on each separate beneficiary designation form. This will insure that after you die the assets held in your IRAs will be distributed to your beneficiaries under the terms of the separate subtrusts that you have created for their benefit.For more information about IRA Trusts, refer to What Are the Benefits of an IRA Trust?