Using an IRA trust or beneficiary designation

California residents who have IRAs may have used a beneficiary designation to indicate who they wish to receive the funds in the account after their death. Most of the time, this is the best approach.

A surviving spouse who is listed as the beneficiary on an IRA has two choices for distribution. One is to roll the account over into his or her own name. Another option is to treat the account as an "inherited account." This means that the deceased person's name remains on the account. If the spouse is under the age of 59 1/2, it is possible to access the funds without a penalty. If the beneficiary is not a spouse, then they must begin taking distributions by the end of the calendar year after the person's death or must take the full distribution at the end of the fifth calendar year after death.

There are a few circumstances in which creating an IRA trust may be the better option. If a relative has addiction problems or is otherwise irresponsible with money, putting the money in a trust allows a trustee to handle distributions. An IRA trust can also hold assets for minors until they come of age. It can also protect assets or ensure that children of previous relationships receive some of the IRA.

A person who needs to do this kind of complex estate planning may want to speak to an attorney. Legal counsel can be of assistance in preparing the complex paperwork involved in setting up this type of a vehicle.


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