STAND-ALONE IRA BENEFICIARY TRUST (IRA TRUST)

Why Would You Need an IRA Beneficiary Trust (IRA Trust)?

If there is a specific goal for the distribution of a retirement account, you might want to use a Stand-Alone IRA Beneficiary Trust. This could be used when a beneficiary designation is not enough to achieve planning goals.

Examples of when this might apply to include:

Spendthrift protection;
Creditor protection;
Divorce protection;
Special needs; or
Investment management.

Is It Irrevocable or Revocable?

The Stand-Alone IRA Beneficiary Trust is revocable, meaning once it is created, it can be changed. This includes changes by the person (or people if it is a joint Trust) who created the Trust.

In some cases, you might allow your financial power of attorney or a Trust Protector (also known as Trust Advisor) to make modifications. Upon death, this Trust becomes irrevocable.

Is a Separate Tax Identification Required?

The Stand-Alone IRA Beneficiary Trust does not require a separate Tax Identification Number; the creator (Settlor or Grantor) would use their social security number as the identification number. Upon death, a social security number can no longer be used.

Can You Be Your Own Trustee?

During life, you can be your own trustee of this Trust.

Is a Gift Tax Return Required?

No, a gift tax return is not required for a Stand-Alone IRA Beneficiary Trust. Transfers only occur upon death, so there is no gift tax related to this Trust.

Is This Subject to Estate Tax Upon My Death?

Yes, assets payable to the Stand-Alone IRA Beneficiary Trust will be included in your taxable estate.

After death, except for Roth IRAs, income tax would also be due when distributions are made from this Trust.

Is There Creditor Protection?

During your life, the Stand-Alone IRA Beneficiary Trust will not hold any assets. Upon death, the Trust will be protected from your creditors and could include creditor protection for the beneficiary.

What Assets Can Be Placed in This Type of Trust?

As the name suggests, a Stand-Alone IRA Beneficiary Trust typically owns IRA and other retirement plan assets.

How Does It Work?

Just like a Revocable Trust, the Stand-Alone IRA Beneficiary Trust is created by you during your life. Upon death, assets payable to the Trust will be distributed based on the terms you have in place. It is important to note that specific standards must be included in the Trust and for the administration after death to ensure the Trust meets the “see-through” or “look-through” standards. The Treas. Reg. section 1.401(a)(9)-4 requirements include:

Trust must be valid under state law;
Trust is irrevocable upon death of owner;
Beneficiaries are identifiable from the instrument; and
The Trust is timely delivered plan administrator after death (October 31st of the year following the date of death).

Contact a Trust Attorney today to schedule a consultation and learn more about how we can help you with your estate planning needs.