New York residents who have individual retirement accounts can use two types of IRA trusts to protect any funds that are left to heirs. Individuals can spend IRA funds as they wish as long as they only take the mandated minimum required. However, for heirs that may have a tendency to not spend money wisely, account holders can use a trust to make sure that the funds are distributed in a sensible manner.
IRA trusts are ideal for anyone with a sizable IRA who has concerns about how an heir will spend the money. The trust prevents heirs from obtaining the money immediately upon the death of the account holder and can protect the funds from creditors and divorces.
One detail account holders should keep in mind is that in order to ensure the intended person or persons receives the IRA, they have to be listed as beneficiaries on the account. Simply having them named in a will as heirs to the IRA is not enough to overrule who is named on the account.
A conduit trust is one type of IRA trust account holders may consider. The distributions flow from to the IRA to the trust and then to the beneficiary. This allows the money to be taxed at the beneficiary’s rate.With an accumulation trust, the distributions are placed in the trust, but they remain there to be distributed to the beneficiary at some time in the future. This results in the money being taxed at the income tax rate for the trust. People who are unsure of whether this type of trust makes sense for their situation might want to meet with an estate planning attorney to discuss the matter.