IRAs, Trusts, & Heated Conversations 

Did you know that your IRA is one of the types of assets protected if you enter a nursing home? Although your estate planning attorney won’t help you invest or manage it, they should be—at the very least—informing you of this important protection.

Your IRA is the type of asset that doesn’t allow you to change ownership. You can’t share it or gift it without significant consequences. For this reason, we don’t recommend that people put their IRA into a trust while they are still alive. We regularly recommend that the IRA be a beneficiary. Maybe it’s your secondary beneficiary after your spouse—or your first beneficiary if you don’t have a spouse. 

We will elaborate more on this in a moment, but what happens next is interesting. After making these recommendations, we may get a call from our client’s financial advisor asking us to have a meeting. It is important to point out that during these meetings, we never discuss what is in our clients’ documents because it falls under attorney-client privilege. We will talk in general about whether a trust should be a beneficiary. Other financial advisors will tell their clients, who will then tell us that they shouldn’t do this. They say they can’t make a trust the beneficiary of an IRA. Though sometimes they give reasons, they usually just say they wouldn’t do it. So, should you?

The Connection Between an IRA & a Trust 

The owner of your IRA should never be anyone else but you and you alone. For the record, we have never told any client—and will not tell you ever—that you have to take ownership of your IRA and put it in a trust while you are living. However, as an owner, you can name a beneficiary (or beneficiaries). This can be a person, multiple people, a primary beneficiary, a secondary beneficiary, or an entity like a trust. 

What are the consequences of choosing a trust as your beneficiary? First of all, nothing will change in terms of taxation of that IRA. This applies to you and your beneficiaries. Naming your trust as the beneficiary of your IRA will not only change anything for you, the owner, but it won’t change the investment. Because of the SECURE Act, if you are a spouse, you can make your deceased spouse’s IRA your IRA. It’s called a rollover. If you aren’t a spouse, you have only one choice. Take it all at once and pay the tax, or ten years following death, you must have completely taken it all out if you want to do it incrementally. That’s your only choice as a non-spouse. If you name a trust as a beneficiary and meet certain conditions (there are five, and our trusts do), then the choices are still the same. 

Why Should I Make the Trust the Beneficiary of My IRA?

It’s simple, and we’ll say it in two words: asset protection. If you leave your beneficiaries an IRA through a trust, and one of those beneficiaries is in the middle of a divorce, has an addiction problem, has problems handling money, or is facing large medical bills, their money is protected if you leave them an inheritance through a trust. How do you leave an IRA through a trust? Make your trust a beneficiary. IRAs and trusts are simply connected in this way. 

Let’s Keep This Conversation Going

Discover the strategic advantage of making your trust the beneficiary of your IRA for unmatched asset protection. Don’t let misunderstandings dictate your estate planning. Schedule your consultation today to learn how we can tailor your estate plan to your unique needs. Because at our firm, we’re with you every step of the way.

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Kevin Tharpe

With 25 years of experience, Kevin understands how estate planning, special needs planning, and government benefits programs work together. This is a crucial element of a thorough plan. He explains your eligibility for benefits programs and ensures that you do not make costly mistakes that may disqualify you or deplete your assets.

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