Can I put my IRA (Individualized Retirement Account) in a trust?
You can’t. At least not while you are alive, but what you can do is name your trust as the death beneficiary (also known as the transfer in death TOD beneficiary) to ensure the assets pass to the trust after your death.
By doing so, you can ensure your intentions are followed in accordance with the terms of trust without having to worry about changing circumstances that may apply if you were to just name beneficiaries to the trust outright and free of trust.
For example, let’s say you want to leave all your assets equally among your children upon your death, but also wanted those assets to be protected from certain risks such as a child’s potential divorce (or other creditor risks/lawsuits) down the road. Your estate planning attorney likely drafted your trust to accomplish those objectives by using key provisions in your document (for example, trust protectors or decanting powers) to ensure those protections applied to all assets placed in trust.
Therefore, in such a scenario, you’d want you trust to be named as the transfer of death beneficiary rather than your children directly in order for those asset protection benefits to still be applicable.
However, it’s very important that if you are naming a trust as the transfer on death beneficiary, that the trust should be designed with “see through” or “pass through” provisions inside of it to ensure that your children (or whoever you name as the beneficiary) gets the best stretch benefits under the new Secure 2.0 act rules. For example, eligible designated beneficiaries like a spouse or sibling close in age can still get the stretch benefits that most clients are familiar with under the old rule, other beneficiaries (like adult children) can get a 10 year withdrawal window, but if you fail to set up the trust correctly then all those beneficiaries may have to deal with a reduced withdrawal window limited to one 5 years - meaning they have would have to distribute out all of that money/investments in 5 years rather than having 10 years or a lifetime stretch of RMDs - which you definitely don’t want to have happen.
If you are married and don’t have asset protection concerns, you may decide to keep your spouse as your primary beneficiary of the retirement account and name the trust as the second/contingent beneficiary, but this is a decision that you should discuss with your financial advisor and attorney before updating your transfer on death beneficiaries.
One last wrinkle I’ll leave you with - when discussing these “see through” trust terms with your attorney, you generally have two options - setting up the trust as a “conduit” trust or an “accumulation” trust. Conduit means that the asset must be distributed out of the trust as the required minimum distributions are received - in other words the trustee cannot hold onto those distributions. Whereas with the accumulation trust feature, the trustee doesn’t have to give out distributions to the beneficiary directly in the year the RMD is received to the trust because it allows the trustee to hang onto or accumulate those distributions. This is an important point to consider if you do have asset protection concerns for your children or other beneficiaries.
For more information on how to place retirement assets in trust upon your death, or if you’d like me to review or create a trust for you, then click the link below to schedule a call with me today.
