When it comes to estate planning, you have a LOT of options. There are several legal tools that can be put in place to protect your loved ones after you pass away. One valuable tool I use an an Orange County trust lawyer is an IRA inheritance trust.

If you opened an IRA, you most likely named a beneficiary to receive the proceeds of the account when you die.  However, depending on your situation, it might actually be helpful to name a trust as the beneficiary. Naming an IRA inheritance trust as beneficiary instead of naming an individual can provide several benefits.

One of the primary benefits is that you can protect the money if the person you named as beneficiary is not financially savvy. For example, if the person files for bankruptcy, the IRA inheritance trust is protected. Creditors cannot claim money in an IRA inheritance trust.

Another benefit is that the money would be protected if the beneficiary goes through a divorce. In California, trusts established before the marriage are considered separate property.  Obviously, timing is critical so you need to establish the trust before the wedding!

An IRA inheritance trust also allows you to control how the money is handled. If you are leaving the funds to a minor child, you can limit access to the money until an age that you determine is appropriate. You can also arrange things so that the beneficiary receives distributions over time rather than receiving a lump sum at your passing.

There are valid reasons why you would not choose an IRA trust. For example, a spouse may receive tax benefits for IRA distributions that they would not get if you left the funds in trust. A spouse also has the option of rolling over the IRA to his or her own and deferring distributions. This cannot happen if the IRA funds were in trust. Doing so would mean that he or she would miss out on the accrued compounded interest they might get if the funds went into their IRA.

This is just another example of why you need to speak to an experienced Orange County trust lawyer before making decisions like this. There are pros and cons for every option and you need the counsel of an attorney who understands them all. Only then can you get a plan that works for your unique needs.

If you would like to discuss establishing an IRA inheritance trust, call our office at (949) 260-1400 and schedule a free consultation. We’ll make sure that you do what is best for you and your family.