Trusteed IRA's; IRA Planning with a bit more control

Blaine Bowers |


In my article about Stretch IRA's, I wrote about two key provisions that can allow your beneficiaries to 'stretch' out your IRA, giving your assets the opportunity to last for many years to the benefit of those you care about by allowing the IRA to continue to accumulate on a tax-deferred basis (or with Roth IRA’s, potentially tax-free) for as long as possible.

In many cases, IRA owners select much younger IRA beneficiaries because their young age means a much longer life expectancy and therefore requires smaller required minimum distributions (RMD's) from the IRA each year. 

I want you to be my beneficiary, but . . .

There are many issues that can arise when passing an IRA to your heirs, but one issue that can often become a significant concern is that your beneficiary will likely be responsible for investing the IRA assets regardless of their experience or skill. 

Sometimes the people that we love, care about and that we want to benefit from our assets don't always make the best decisions.  Perhaps your beneficiary has fallen into a difficult situation, has a tendency to be financially short-sighted, or just simply has a lack of discipline in regard to finances.    

In a typical IRA, your beneficiary takes control of your IRA assets after your passing.  Even though there are ways to optimize the use of the newly inherited IRA, you can't always be sure that your beneficiary will take advantage of those ways to optimize the IRA (or know how to). 

Unless you plan ahead of time, there is nothing to stop your beneficiaries from withdrawing all (or huge chunks) of the IRA at any time. 

A trusteed IRA can help solve many of these problems.

With a trusteed IRA, you can't stop the payment of the required minimum distributions (RMD's) to your heir, but you can restrict additional payments from the IRA.  For example, you can direct the trustee to pay out only RMD's, or if additional assets are needed for your heir, you can make sure that the trustee has the discretion to make additional payments for education or health needs.

A popular option is to impose restrictions on the distributions until your beneficiary reaches an age that they might likely be mature enough to handle the assets.

Other options that are often used relate to divorce and making sure that your assets go only to those that you want them to go to. 

A trusteed IRA can also be a valuable tool during your lifetime. 

You can make sure that a trustee can step in to help with distribution and investment decisions should you become incapacitated.  Of course this approach is not going to be right for everyone; but it can be an outstanding option for some situations.  Be sure to work with your CFP® to determine if this is the right fit for you. 

You’ve worked hard to build your IRA. 

For many people a trusteed IRA is just the right fit to provide the peace of mind that those hard-earned assets in their IRA will be best managed and well utilized by their beneficiaries. 

Please contact me with any questions about this topic or other things on your mind.  Also be sure to follow me on Facebook, Twitter, and LinkedIn to stay updated on other important issues.