What is an IRA Inheritance Trust?

IRAs and other retirement funds often make up the bulk of an individual’s assets. In order to maximize the growth of these investments and protect beneficiaries, individuals sometimes choose to make the contingent beneficiary of the IRA a trust. This creates an IRA inheritance trust, which is also referred to as an IRA beneficiary trust, an IRA stretch trust, or an IRA protection trust.

There are advantages to an IRA inheritance trust, depending on your situation. First, using the trust as your contingent beneficiary avoids having to name a successor beneficiary in case your first named beneficiary predeceases you, or you inadvertently have named an incorrect contingent beneficiary, or failed to change the contingent beneficiary as needed. Next, an IRA inheritance trust can protect the IRA if the beneficiary is a minor, is facing bankruptcy, collections actions, or divorce, or is generally irresponsible with money. Placing the IRA in a trust allows you to better protect the IRA proceeds by placing restrictions on the funds as needed. If the IRA proceeds are not in a trust, the whole lump sum would be payable to the beneficiary immediately, which makes it vulnerable to bad spending habits, existing creditors, and estranged spouses. Finally, if structured properly, you can maximize the tax deferral benefits, as well.

IRA inheritance trusts are complex legal documents that may or may not be appropriate for your situation. Plus, there are negative tax consequences for your heirs if the trust is not structured very precisely. There also are many different variations of these trusts, depending on your individual circumstances and goals. As a result, it is essential that you contact a skilled Michigan estate planning attorney for help.

Legacy Law Center consists of Michigan estate planning lawyers who have extensive knowledge and experience in creating all types of estate plans. We are devoted to advocating for your interests and helping you protect your family’s financial future. A comprehensive estate plan is a necessity for all individuals, and we are here to guide you through the often complex process of creating such a plan. Contact our Ann Arbor office for an appointment with our estate planning attorneys and learn how you can best protect yourself and your family.