Many residents of the San Jose area might own an individual retirement account, which is commonly called an IRA. Many times, people will build up considerable savings in their IRAs.
By the time a person reaches old age, an IRA can hold a value of millions of dollars.
As a result, a Californian who has a lot of her wealth tied up in an IRA may want to develop a legal asset protection strategy to make sure as much of this IRA as possible can be used for one’s own retirement or handed down to the next generation.
One vehicle for passing down the value of an IRA is what may be called an IRA trust. A person cannot put an IRA into a trust while he is alive, but he is allowed to use his wills to create a testamentary trust in which his IRA wealth gets moved into a trust upon death.
IRA trusts offer estate planning advantages and drawbacks
Transferring an IRA into a trust may not offer much in the way of tax savings. However, it can protect the assets from the possible costs and expenses of litigation in other respects.
For example, the IRA trust can help provide for a loved one who has special needs and may rely on government aid that requires the loved one to have limited assets and income.
Without a properly established trust, a gift to a loved one with special needs may get recouped by the government or may affect her loved one’s eligibility for aid.
An IRA trust may also be useful in a situation where there is a wide range of ages among the beneficiaries.
However, IRA trusts are not ideal for every situation. For example, there are limits on how long a person’s beneficiaries can hold the IRA’s assets in trust before having to distribute them.
Someone who is interested in setting up an IRA trust should speak with an experienced attorney.