IRA Beneficiary Trusts

An IRA Beneficiary Trust is a standalone retirement trust used to provide asset protection and maximized tax deferred growth for spouses, children, and other loved ones. This means more assets go to the people you care about. An IRA Beneficiary Trust allows you full control and the right to enjoy your retirement funds while you are alive. However, if you’re like most people, you will still have assets in your retirement account when you die; that’s when the IRA Beneficiary Trust will protect your loved ones and their inheritance.

Protections are important:

  • Your IRA could be spent in six months, lost due to taxes, or taken by someone you don’t even know!
  • Your IRA could become the property of your surviving spouse’s new partner!
  • Your IRA could become the property of your child’s ex-spouse!
  • Your IRA could become the property of your child’s creditors!


Thanks to IRS rules, your beneficiaries (those who receive your IRA after you and your spouse die) may now stretch-out their taxable required minimum distributions over their own life expectancies allowing the principal of the IRA to continue to grow, tax deferred.  This means your IRA asset may compound income tax-free for a much longer period after your death and literally grow to be a substantial sum for your loved ones!

Tax-deferred growth makes an ENORMOUS difference! Here’s an example:

Example:  A $200,000 IRA, inherited by your 50-year-old child, could be worth $1.5 million, or more, over their lifetimes or your grandchildren!  In other words, obtaining maximum income tax stretch-out is now a prime planning objective.

When you die your child is given a choice of a lump sum distribution or to take annual smaller distributions.  Which choice do you think they will make?  When your child was 12 years old and you placed a dozen chocolate chip cookies on the table and told them to only take one before dinner, how many did they take? They will most likely find reasons to take it all out in a lump sum that will cost them thousands upon thousands of tax free appreciation and will require them to pay taxes on the distribution.

That’s the problem, the stretch-out is not automatic!  IRA(s) left to an individual may be taken out in a lump sum and spent in a manner which you would not approve – new cars; lavish travel; expensive jewelry; and your hard earned IRA funds can be unwisely spent by in-laws you do not approve of!

You can solve that problem by creating a standalone IRA beneficiary plan trust as the beneficiary. Your beneficiaries are the beneficiaries of the IRA beneficiary plan trust but the trust regulates how the IRA distributions are received by them. Your wisdom and instructions are drafted into the trust to ensure they get the maximum growth but still have use of the IRA assets.

An IRA beneficiary trust can assure that your beneficiaries take advantage of the maximum income tax stretch-out and allow your IRA assets to compound income tax-free for generations.  By wisely using an IRA BENEFICIARY PLAN TRUST you can give your loved one’s your wisdom and help them have lasting financial well being!

An IRA BENEFICIARY TRUST can also protect your loved ones from losing your hard earned IRA funds due to:


An IRA BENEFICIARY TRUST can also prevent the blow-out of your hard-earned IRA asset due to poor money management.

This income tax stretch-out can be obtained either by naming (1) individuals as beneficiaries or by naming the (2) IRA BENEFICIARY TRUST as beneficiary (and your named loved ones are the beneficiary of the IRA BENEFICIARY TRUST).

Simply naming individuals as beneficiaries may create a host of other problems:

1.The individual beneficiary may at any time decide to take out more than the required minimum distributions (RMDs) because he is not aware of the tax rules and the choices he has, or he gets bad advice, or he simply wants to spend the money (or his spouse or another party influences him to spend it), and, thereby, cause taxation to occur much earlier and lose years of tax free compounding, and essentially blow the stretch-out.

2. The original account owner does not control who will eventually inherit the IRA assets after the primary beneficiary.

3. The beneficiary may have poor money management skills, be a spendthrift or too young or disabled to manage money.

4. The IRA is exposed to the beneficiary’s spouse in a divorce.

5. A beneficiary receiving government benefits could lose them.

6. Lawsuits against the beneficiary and his creditors could grab the IRA.

7. Even if none of the above occurs, the sizable IRA could be subject to estate taxes when it transfers to the next generation?

An IRA BENEFICIARY TRUST can solve all of the above problems!

What Sets Our IRA BENEFICIARY TRUST apart from other trusts?

Our IRA BENEFICIARY TRUST offers some unique post-mortem flexibility, which permits the trust to adapt to the conditions which often occur after the IRA owner’s/trustor’s death. If the beneficiary’s share of the IRA BENEFICIARY TRUST is a Conduit  trust, meaning that all of the IRA distributions flow over into the trust and then are immediately distributed out to the beneficiary, the beneficiary’s life expectancy can be used for stretch-out purposes.

On the other hand, there are a number of estate planning reasons why we would prefer an Accumulation trust instead, where the IRA distributions that flow into the trust are distributed to the beneficiary only in the discretion of the trustee. Unfortunately, an Accumulation trust may cause the maximum stretch-out to be lost unless a whole number of requirements are met.  If any monies accumulated in that trust could ever, at any time in the future, pass to someone older than the primary beneficiary, that older person’s shorter life expectancy must be used, thus substantially reducing the stretch-out and the growth.

Our IRA BENEFICIARY TRUST can solve these problems.

One of the unique features of our IRA BENEFICIARY TRUST is what we call a toggle switch which the Trust Protector can use, following the trustor’s death, to convert between a Conduit and Accumulation Trust, as is appropriate given the circumstances of the beneficiary and their need for protection.

All of the features we have described have already been approved in a Private Letter Ruling by the IRS.  We will be happy to explain the IRA BENEFICIARY TRUST in a free consultation.


Let us help. Call today for a free consultation with Attorney Ben Connor.

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