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When to use a trust for an IRA

Placing an IRA account into a trust fund is fairly uncommon. However, there are some situations in which dispersing the funds at a later date is the best estate planning option. New York residents who own IRAs should be aware of how to plan so that their funds are used as intended.

An IRA is usually willed directly to a surviving spouse or child. The spouse can decide to roll the IRA into his or her name so that it will be subject to standard distribution guidelines, or the spouse can opt to treat it as an inherited asset. When there is no surviving spouse, the surviving children become beneficiaries who are required to receive distributions within a certain time frame.

An IRA owner may decide to use a trust to ensure that the intended recipient receives the funds and that the funds are appropriately managed. This includes situations in which the owner has remarried and wants his or her children to be sole beneficiaries. An IRA trust may also be used if the intended beneficiaries have poor financial management skills. A trust with predetermined distribution guidelines can be established for the funds and a trustee will oversee the investing of the money.

Another reason to use an IRA trust is to safeguard financial assets as the disbursements are exempt from legal judgments, ex-spouses and estate taxes. There is also an economic advantage to using an IRA trust for minors, who may not have to pay income taxes as long as they are receiving disbursements.

Knowing whether or not to place an IRA in a trust requires consideration of whether it will benefit the recipient. If there is concern about how an IRA should be willed, an attorney who practices estate planning law may be consulted.

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