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IRA trusts and whether to establish them

Pennsylvanians with large individual retirement accounts may wonder whether they should plan to transfer the accounts by designating their loved ones as beneficiaries upon their death or if they should instead create IRA trusts. In most cases, designating beneficiaries is a better idea unless certain familial situations apply.

When a person dies and leaves behind a surviving spouse who is the IRA beneficiary, the spouse may either roll over the IRA balance into his or her own account or leave it as an inherited IRA, leaving the deceased spouse's name on the account. If the surviving spouse is under the age of 59 1/2, he or she will likely want to leave the IRA as an inherited account until that age is reached so that the IRS penalty for early withdrawals is avoided.

Adult children who are beneficiaries must either begin taking distributions beginning Dec. 31 in the year the parent died or withdraw the entire amount by Dec. 31 of the fifth year after the parent's death. One situation in which a trust might be a good idea is if the parent is in a second marriage and wishes to provide for the spouse but have the remainder go to his or her children. Another time a trust might be advisable is if the intended beneficiary is a spendthrift, for protection of the funds in the IRA in the case a divorce later occurs or if the owner intends to leave the account to children who are minors.

A person whose family situation is unusual may want to talk with an estate planning attorney in order to determine whether an IRA trust is a good idea. This type of trust often requires ongoing oversight as it is normally very technical and complicated, and thus might not be suitable for everyone.

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