After years, perhaps even decades of pouring money into your individual retirement account (IRA), it only makes sense to ensure it goes to the appropriate party if you do not live long enough to receive all the payments. Unfortunately, transferring an IRA to a living trust can be far more complex than most people realize. The following information can help you better understand how to avoid such consequences. You shall also learn where to find assistance with the process.
The Complicated Nature of IRA Accounts
Created under the Employment Retirement Income Security Act (ERISA) in 1974, IRAs were originally meant to provide employers with a way to offer affordable retirement benefits to their employees (at that time, most did not have the funds to cover a traditional pension plan). Now they are one of the most common types of retirement plans, and they can even be purchased by individuals with qualifying income and credentials.
Unfortunately, there are many rules, exclusions, limitations, and legalities involved with an IRA account – especially when it comes to the transfer or disbursement of the account. For example, IRAs can only be “owned” by the individual that started it. It cannot be transferred to a trust nor can it be owned by a business or other entity. Still, there are ways to transfer an IRA upon death. It just requires some thoughtful planning.
Transferring an IRA to a Living Trust
While one could simply name a beneficiary for their IRA account, some plan owners prefer the increased accountability of a trust. For example, if the grantor has a special needs child with their ex-wife, they may want to ensure that the funds are used to benefit the child directly. Just keep in mind that disbursement to a trust before the age of 59.5 is considered an early disbursement, which may result in an early payout penalty. As such, it is recommended that you speak with an experienced wills and trusts lawyer before naming a trust or changing the beneficiary on your IRA account. An attorney can also help ensure the right verbiage is used in your estate plan (i.e. “pass through,” “designated beneficiary,” etc.) to reduce the risk of any transfer issues.
Contact Our Mount Prospect Wills and Trusts Lawyers
Known for our creative solutions and personalized touch, the experienced Mount Prospect wills and trusts lawyers at Drost, Gilbert, Andrew & Apicella, LLC can assist you with your estate planning needs. Get started by scheduling a consultation. Call our offices at 847-934-6000 today.
About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.