Trusts as IRA Beneficiaries

The laws regarding IRAs are very complex.  Even more complex are the laws dealing with trusts as beneficiaries of IRA accounts.  The rules are so complicated you probably don’t want to even mess with them unless you are dealing with an attorney who specializes in the subject.

That means those of you who have living trusts, don’t blindly name the living trust as the beneficiary of your IRA.  If you do, there is a good chance that the IRA is going to have to be distributed over the life expectancy of your oldest beneficiary.  A result the younger kids and grandkids aren’t going to be thrilled about.

Not only that, but in most of the marketed stand alone retirement trusts, the account is going to have to make distributions each and every year whether the kids want the money or not.  In short, most trusts do nothing but create a headache for IRA distributions.

One type of trust that makes a whole lot of sense is something we call the Family Owned Retirement Trust — FORT, get it?

With this type of trust, the IRA assets can be commingled and invested together for the whole family, you don’t have to set up 15 different trusts.  Additionally you don’t have to make distributions each and every year.  If the family doesn’t need income, no big deal, it doesn’t have to be distributed.

Another great aspect of the FORT is that it lives up to its namesake, it is protected from adversaries.  If you go to my resources page I’ve got a complete section on the asset protection of inherited IRAs, its mostly bad news.  With the FORT, the retirement plan assets are protected.

The moral to the story is the next time you are filling out a beneficiary designation for your retirement plan don’t list a trust as the beneficiary unless you have a specially created trust specifically for that purpose.