ASK THE EXPERT: Answers to Common Questions About IRA Trusts


By: The Ultimate Estate Planner

The IRA Inheritance Trust® (also known as a “Standalone Retirement Trust”, “IRA Beneficiary Trust” or just plain and simple “IRA Trust”) has now been around for over 10 years. The IRS approved this strategy in PLR200573044 and, even though, it’s been around for some time, it’s only now that so many estate planners are starting to implement and use this planning for their clients.

Whether it’s fear of learning something new, not fully understanding or being clear about the benefits for using this trust strategy, or just not having ever heard of it, it is clear that there is definitely still some mystery or misunderstandings about IRA Trusts.

We are focusing this article on answering the top five questions we receive about standalone IRA Trusts. And, what better way than to get these answers from IRA Trust Expert and IRA Inheritance Trust® creator himself, Philip J. Kavesh.

IRA TRUST QUESTION #1: Why is a standalone IRA Beneficiary Trust a better planning option than a Revocable Living Trust?

ANSWER. There are both technical and practical reasons why an IRA Beneficiary Trust is a better planning option than leaving IRA assets to the Living Trust.

First, here are the technical reasons:

1. There are a number of regular provisions in a living trust that will disqualify it as a designated beneficiary trust, such that the beneficiaries will not be able to use their own life expectancy for calculating required minimum distributions (“RMDs”) and may be forced to use a life expectancy as short as 5 years. These provisions include but are not limited to payment of debts, expenses and taxes, accounting for principal and income, and charitable beneficiaries.

2. Although it is possible to firewall some or all of these provisions when a beneficiary is given a conduit trust (that pays out all RMDs immediately to the beneficiary), the process of firewalling becomes much more complicated if an accumulation trust (which offers significant asset protection) will be used.

3. Since a standalone IRA Trust with the toggle switch feature can allow the protective benefits of an accumulation trust if needed in the future and the free – standing IRA Inheritance Trust ® has already received a PLR stating it qualifies as a designated beneficiary trust, if total IRAs (husband and wife) exceed a $150,000, it makes more sense to use this standalone trust than take the risk that a 5 – year RMD rule could apply and that future protection may be lost.

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