Sometimes there are good reasons to name a trust rather than an individual as a beneficiary of your IRA. Maybe you have a child who you fear will spend the money they inherit wastefully, or maybe you have a special needs heir and a direct inheritance would affect their qualifications for aid, maybe there is a second spouse you wish to provide for but children from a first marriage you want to protect also.
All of these goals can be achieved and the "stretch out" provisions of IRA rules preserved if you do some careful planning.
IRS rules only allow individuals to inherit IRAs without triggering immediate taxation. However if you structure a trust as a "see through" trust you can exert some control without losing the tax benefits of a "stretch IRA". To qualify as "see through" the trust must:
Having a trust as the beneficiary of your IRA can provide many benefits, but the price of making a mistake is high, so be sure to consult with a qualified legal and tax advisor before choosing this option.
Corporate trust services are offered by trust companies, banks, some attorneys, and some financial advisors.
Your first step should be to determine just what services you expect to receive from the trustee. You can choose a trustee to perform the administrative functions only. This could include:
When you have determined exactly what services you want the trustee to provide you can move to the next phase which is where you should request proposals from several sources. If possible you should meet face to face with a trust officer from each firm you interview. While very intangible the personal touch is a large part of the function of corporate trustees.
Some of the questions you will want to ask include:
The responsibilities of a trustee are often complex and time consuming. Managing trust assets often entails familiarity with tax law, real estate markets, security markets, and financial planning. Often it is the oldest or most responsible heir who is given this duty. Here are some things you should consider before deciding on a trustee.
It could be that after asking yourself these questions you may determine that a corporate trustee would be better for all. The most common reason for not naming a corporate trustee is expenses, but don't be penny wise and pound foolish. The reason you went to the trouble of setting up a trust is to protect your loved ones; a poor choice of trustee could make it all a waste.