For those Oregon residents who have a mind towards and plan for the future, retirement savings and estate planning are two essential components. An IRA is a popular choice to save and grow retirement funds. The funds designated for the IRA are pre-tax dollars, which saves on present tax, allows the invested money to grow, and defers the tax until the money is withdrawn in retirement, typically at a lower tax rate. A trust provides a way to control one’s assets during life, distribute to beneficiaries after death, and potentially do so without the need for probate.
When a person opens an IRA account with a financial institution, it is a matter of course to name a beneficiary to receive the balance of the funds should that individual pass away before the funds have been accessed. Many designate their spouse or child as the beneficiary, but financial experts may recommend a trust can be the beneficiary of an IRA under certain circumstances.
One issue to consider is that when a spouse is named the beneficiary of an IRA, that person receives a stepped-up basis for the account funds. If the funds are instead transferred to the deceased’s trust, the basis for the funds remains the same. Depending on the financial circumstances of the deceased’s estate and the beneficiary, it may not make sense to have the trust be the beneficiary of the IRA. If the IRA funds become part of the trust, the proceeds are distributed according to the written terms of the trust document.
There are many factors to consider when developing an effective and comprehensive estate plan. An experienced estate planning lawyer might explain how a trust, will, power of attorney for financial matters, power of attorney for healthcare and other documents may help protect the individual.