IRA trusts as part of an estate plan

When Georgia residents have worked all their lives to build up a sizable estate, they may worry their heirs may not be good money managers or will fritter away their inheritances in a short while. There are, however, ways in which they can protect their heirs from themselves.

If they leave behind an individual retirement account, they can place these assets in an IRA trust. In recent years, it has become more popular for people to name an IRA trust as their beneficiary. A trust bars heirs from getting immediate access to IRA fund but will still distribute assets to the heirs. The IRA names the heir as its beneficiary. People with 401(k) plans can also name such a trust as their beneficiary.

There are two types of IRA trusts. A conduit trust transfers the money from the IRA account to the heir who pays taxes on it at his or her own rate. The accumulation trust transfers the money to the heirs at a later date, with the trust being responsible for taxes.

An IRA trust can be a valuable estate planning tool, but setting one up isn't as easy as opening an IRA. There are a few factors to consider, one being that beneficiary designations take precedence over the language in a will. This makes it important to coordinate estate planning documents so they complement, not contradict, each other. People who seek to protect their heirs may wish to consult with an estate planning attorney who may be able to make sure the documents are prepared properly.

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