Who Can Be the IRA Trustees?
Selecting an IRA trustee is a key element of legacy planning for an IRA owner. Your selection should reflect what’s most important to you in terms of control, asset protection and tax deferral.
An IRA trustee can be any bank, financial institution, or licensed trust company; alternatively the trust can also be left with a look-through trust.
Anyone can act as trustee, provided they understand their role and adhere to the instructions outlined in a trust document. In general, it’s wise to select someone with experience managing investments as the trustee; otherwise it could end up becoming too personal for its intended purposes and compromise trust goals as intended by grantor. It is also crucial for trustees to assess beneficiaries to determine whether lump-sum distribution or stretched distribution would best meet legacy concerns while considering recipient ability.
To qualify as a “see-through” trust, an IRA must be irrevocable and contain all designated beneficiaries identifiable in either its trust instrument or final list provided by its trustee by September 30th of the year following death. Once these criteria have been fulfilled, its trustee can distribute its contents either according to either five year rule or over single life expectancy of oldest beneficiary (if none exists).
Trustee must be able to put aside their own interests, beliefs and biases when acting in the best interest of trust beneficiaries. Furthermore, they must ensure the trust is kept secure with assets properly accounting for.
Trustee roles may be carried out by individuals or independent businesses that specialize in administering and managing trust funds – these entities are commonly known as “revocable living trust companies” or “trust company” firms.
Trustee’s must be able to communicate effectively with their beneficiaries of a trust, outlining its terms and duties clearly as well as responding to any inquiries or concerns the beneficiaries may have. Communication via email, phone call, or other forms is usually sufficient; this ensures they are acting according to grantor’s wishes.
Trustee of an Individual Retirement Account are responsible for managing its assets according to IRS regulations, usually by following required minimum distribution rules and making investments that serve beneficiaries’ best interests while providing annual statements to all account owners.
Dependent upon the type of trust used, trustees can also have significant control over distributions from an IRA. For instance, they could set up a conduit trust which allows them to accumulate distributions from an IRA before investing them for a beneficiary until retirement age or for other reasons.
As well, trustees must abide by the new Department of Labor fiduciary rule regarding fees paid by an IRA investment adviser. Jason may need to offset fees that exceed his statutory trustee commissions with other funds in his IRA portfolio.
Trustees have many duties beyond investing assets and managing taxes, including communicating with beneficiaries and dealing with professionals. Such duties can be tedious and time-consuming; compensation for this service may be sought from trustees in some instances.
The trustee fee may be determined as either a percentage of the trust value or hourly rate, with documentation in the trust instrument helping reduce miscommunication and disagreement between trustees and beneficiaries. This may help alleviate potential misunderstandings.
Non-professional trustee fees typically range between 0.5% to 1% of trust assets annually; professional trustees tend to charge higher amounts. Furthermore, trustees can choose not to seek any form of compensation. Any trustee fee will count towards your taxable income; take into consideration which beneficiaries you’re serving when making this decision. It can often be beneficial to pay small installments rather than one lump sum payment as this helps lower income tax while motivating trustees to maintain accurate work logs.