Most IRA owners have named one or more primary beneficiaries to the account in the event of the owner’s death. Oftentimes successor beneficiaries are also named to ensure the funds pass as desired where the primary beneficiary has died as well. The beneficiaries will be required to take distributions as specified in the tax code and pay the associated taxes, though they may also take additional distributions as desired. The distributed funds are not protected from the beneficiary’s creditors and a spendthrift may quickly exhaust the IRA. This lack of control may not be the ideal result in every case and the IRA owner may wish to consider further planning for the IRA account(s).

IRA trusts allow for some flexibility in terms of how the funds are distributed to the beneficiaries following the plan owner’s death. Most typical is the conduit trust which passes the full amount of the required minimum distributions directly to the beneficiary, together with any additional distributions received by the trust from the IRA. The trust can provide that any additional distributions (above the RMD) must satisfy conditions stated in the trust, protecting the funds from being dissipated quickly.

The accumulation trust is more restrictive for the beneficiary as it does not pass the entire RMD to the beneficiary and instead retains a portion of the RMD in the trust. This has the benefit of allowing the trust to grow while the assets in the trust benefit from continued asset protection. The downside, of course, is that the trust will be required to pay the taxes on the retained RMD and other distributions and usually at a much higher rate than an individual beneficiary.

Where there may be a need to exercise some control over the IRA and preserve asset protection, an IRA trust may be a valid consideration. Consult with your tax professional and other advisors to ensure that this approach could work and how it will further your estate and tax planning goals. This is a constantly changing area of the law and what might have worked in the past may not work going forward.