Trusts as Beneficiaries of an IRA

According to Ken Hartman, Trust as Beneficiary of IRA is a Popular Strategy, WSJ, Aug. 29, 2009, the following advice may be useful when considering a trust for IRA funds:

Transferring funds from an IRA to a trust would “invariably cause immediate taxation,” because the transfer would be considered an IRA distribution. . . Instead . . . the reader could name the trust as a beneficiary of his IRA. It is a popular estate-planning move for people who want to use a trust to avoid estate taxes or protect beneficiaries.

But, the article gives the following warnings for naming a trust as the beneficiary of an IRA:

• The trust must written according to strict IRS guidelines.
• The trustee should be able to pass all IRA distributions to beneficiaries to avoid high trust income tax rates.
• Leaving the IRA to a trust rather than a surviving spouse may not be preferable. 

Special thanks to Patrick S. Sylvester (Attorney & Counselor at Law, Sylvester Law Firm, PC) for bringing this article to my attention.