VanNess & VanNess, P.A.

When to create an IRA trust

Florida residents who are preparing their estate plans may wonder whether they need to use a trust for their IRA. In most cases, assets in an IRA are passed down via a beneficiary designation after the death of the owner. The surviving spouse is usually the beneficiary and can either do a rollover with the IRA or take it as an inherited IRA. For a person under the age of 59 1/2, the advantage of the latter approach is that it allows the person to avoid the 10 percent federal penalty. If an IRA passes to anyone who is not the spouse of the decedent, that person must generally take distribution within a few years of the original owner's death.

A person who has remarried but who has children from a previous marriage may want to put the IRA in a trust to ensure that those children receive a portion. If a person manages money poorly or has addiction issues, a trust may also be the best solution. A trust can also hold assets for minors.

An IRA trust can be complex and difficult to administer. For this reason alone, the designated beneficiary route may be best unless there are extenuating circumstances such as those mentioned above.

A person who does need to create an IRA trust or create documents that go beyond a simple will might want to consult with an estate planning attorney. In addition to advising about complicated processes, an attorney also may be able to discuss various options that a person may be unaware of. For example, many people do not realize how powerful and versatile different types of trusts can be. People may only think of estate planning as writing a will or otherwise arranging for the distribution of their assets, but it also involves a consideration of how certain decisions will be made during their lifetime if they become incapacitated.

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