Tahoe-Truckee Market Beat: Standalone trusts for IRA investments | SierraSun.com
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Tahoe-Truckee Market Beat: Standalone trusts for IRA investments

Ken Roberts
Special to the Sun

Estate planning is a critical part of the financial planning process. Almost everyone should establish a revocable living trust at some point so your estate doesn’t have to go through probate, which can be long and expensive.

Assets titled in trust form can transfer easily to your intended beneficiaries.

IRAs have beneficiaries listed on the account and can also pass to your heirs easily without having to go through probate.

Are there really any reasons to set up a separate standalone trust for your IRAs? Like anything else, there are advantages and disadvantages.

One disadvantage is the expense, it can cost thousands of dollars to have an attorney draft a trust for you, and if you use a professional trustee, they will charge a fee as well.

To justify the costs, you should have sufficient assets in your IRA account.

There are advantages as well. One advantage is that your beneficiaries will get some protection from creditors and divorcing spouses.

Original IRA owners have protection from creditors, but the US Supreme Court has recently ruled that owners of inherited IRAs and not entitled to the same protections.

Another advantage is that you can decide how much your heirs can withdraw each year if you’re worried about a beneficiary spending their inheritance too quickly.

If your beneficiaries are minors, the funds will be held in a custodial account until they reach the age of 18, then they get all of it.

I think you know what most 18-year-olds will do when they receive a lump sum of money. It can get spent pretty quickly.

By establishing a trust you can pre-determine how much your beneficiaries can withdraw each year. The accounts will be subject to the RMD (required minimum distribution) rules.

Under current law, traditional IRAs are subject to RMDs, while Roth IRAs are not. This makes the Roth IRA an excellent wealth transfer vehicle.

You can name grandchildren and even great grandchildren as beneficiaries and keep the funds in a tax-favored account as long as possible, by skipping generations.

President Obama’s proposed 2016 budget has a provision that could make Roth IRAs subject to RMDs, so that is an area that could very well be subject to change in the future.

If you’re considering establishing a trust for your IRA accounts, seek professional advice. Trust laws vary from state to state.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.


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