Who Is the Trustee of an IRA?

An individual retirement account (IRA) is an investment vehicle – subject to market risks and its value may decrease over time.

By including provisions in their trust instrument, an IRA owner can set forth how they wish for beneficiaries to inherit their savings – this may help avoid potential issues associated with leaving an IRA directly to minors or second spouses.

The IRA Custodian

Your IRA custodian is responsible for safeguarding and managing the assets in your account, such as bank, credit union or authorized trust company. They must file IRS tax documents such as Form 5498 reporting as required.

Custodians must adhere to stringent compliance guidelines in order to keep your self-directed IRA free from prohibited transactions and investments that violate IRS rules and regulations. A trustworthy custodian won’t offer investment advice but instead can assist with complying with their rules and regulations.

For when selecting an IRA custodian, it’s crucial to understand their fees and commissions charges. This may include annual account maintenance fees, load charges (typically associated with mutual funds) and trade commissions.

Select a custodian with experience working with self-directed IRAs, such as longstanding operations or specialization. Ask about their security protocols so as to prevent hacks which have become all too frequent in recent years.

The IRA Trustee

Though IRAs were created primarily to provide tax-deferred growth and enable workers to save for retirement, they also act as an estate planning tool. When an IRA owner dies, their assets pass according to a beneficiary designation form they filled out while still alive – typically individuals but sometimes charities or trusts as beneficiaries are also named as recipients of funds in their account.

Beneficiary designations can be critical. Unfortunately, when an unsuitable beneficiary takes control over an inheritance asset they could become subject to spending problems, addiction issues, lawsuits and may even lose eligibility for government aid if owning it themselves.

One way of working around these obstacles is to establish a trust (with yourself as its Grantor during life) as beneficiary for retirement accounts like an IRA or similar funds, using either Conduit IRA Trusts or Accumulation IRA Trusts.

The IRA Beneficiary

Some IRA owners choose to name a trust as the beneficiary of their IRA in order to provide more control and precise timing and path of distributions. Conduit and Accumulation Trusts may be suitable options here.

As a general rule, when an IRA owner names someone as their beneficiary they will receive distributions based on their life expectancy. There may be exceptions – for instance those living with chronic health or disability conditions or the spouse of an IRA owner receiving distributions over their lifespan.

If an IRA owner chose to name their estate as beneficiary of their IRA, then they would need to adhere to the new SECURE Act rules which stipulate that beneficiaries take required minimum distributions over 10 years. This may prove inadvisable as it could create strain between family members as well as potentially be costly for the estate.

The IRA Owner

An IRA owner may choose to name one or more beneficiaries for their IRA account. Most often this includes spouse and/or children as this helps ensure that it continues to benefit them – this can be especially useful when managing second marriages or complex family structures.

Inheritance rules depend on a beneficiary’s relationship to and age at death of the deceased person, with different rules applying to IRAs that were funded with pretax dollars as opposed to aftertax funds.

Inheritance planning can become more complicated if multiple beneficiaries are listed or the original IRA owner failed to plan for distributions upon death. An IRA trust provides an easy solution that helps address these complications while fulfilling legacy planning goals.


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