Who Can Be the Trustee of an IRA?

Individuals seeking greater control over their IRAs after death may opt for a trusteed IRA. This arrangement means that the account will be managed through a trust document created with help from its owner before death.

Trusted IRAs may impose certain requirements upon beneficiaries. For instance, post-death RMDs might only be paid out.

Who Can Be a Trustee?

An individual creating a trusteed IRA with a Financial Institution establishes the account under a trust document that the IRA owner can help create, with that institution serving as trustee. This differs from custodial IRAs where assets remain the legal responsibility of their owner until both life and death.

An individual might find a trusteed IRA attractive for several reasons. One is its independence from its provider, giving beneficiaries more control to select their own financial advisors and investment managers (or remove them if necessary) without interference from an IRA provider. Another advantage is its privacy compared to public records which provides extra protection from creditors. And finally, trusteed IRAs allow individuals to name successor beneficiaries which ensure funds don’t end up with disqualified parties (like spouses or children), unlike custodial accounts which do not offer this capability.

Who Can Be a Co-Trustee?

An IRA trustee may be an individual or company; however, any two different people cannot act simultaneously as co-trustees as this could create conflicts of interest and should be avoided.

Assigning a trust as the beneficiary of an IRA allows Grantors to determine whether it should be treated as either a conduit trust or accumulation trust, with potential tax implications when considering how best to maximize post-death stretch IRA benefits for beneficiaries.

A trusteed IRA gives beneficiaries greater control over how their inherited account is managed, with discretionary distributions possible and assets protected from creditors more effectively than with custodial accounts. But it may not be suitable for everyone; trusteed IRAs require financial institutions to add new trust terms and language into the IRA document which increases fees; additionally, trusts used as administrators must be approved by the IRS before being set up as trusteed accounts.

Who Can Be a Beneficiary?

Svetlana Bekman: While an estate may serve as an IRA beneficiary, this approach may not provide ideal tax or creditor protection benefits. An estate would have to take out all assets, subjecting them to immediate income taxes when liquidating an IRA and paying creditors as soon as possible.

Individual beneficiaries have various distribution options available to them through the IRS. They may take either a lump sum distribution or distribute over their life expectancy using an attorney-drafted trust and obtain a PLR from them.

An IRA owner may also name a contingent beneficiary, an individual who will only receive assets if all primary beneficiaries die before depletion occurs. This feature helps ensure that an ex-spouse does not wind up receiving his or her share. In addition, “eligible designated beneficiaries” exist with specific guidelines in place for certain individuals such as spouses of those not over 10 years younger.

Who Can Be a Beneficiary of a Trust?

Beneficiaries of a trust can include anyone, such as family or friends. One benefit of using a trust to distribute an IRA is that the account owner can set rules and stipulations regarding how distributions should occur – this can help prevent assets from ending up with someone who could misuse an inheritance, for example an ex-spouse, children from prior marriages or someone who could potentially misappropriate funds.

Trusts can also be set up as accumulation trusts to allow IRA assets to accumulate within them rather than immediately being distributed at death, offering more flexibility for beneficiaries to take their Required Minimum Distributions at different intervals or even suspend them temporarily in cases such as medical emergencies, buying homes or other purposes.

Trusts may offer both advantages and drawbacks as beneficiaries for an IRA, for instance by increasing expenses and restricting discretionary distributions other than RMDs.

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