Improper planning could put your intended beneficiaries in a difficult situation with your IRA. A significant tax consequence might apply if you don’t sit down with an estate planning lawyer and talk over the options available to you that help you to accomplish your goals while minimizing tax consequences for your beneficiary. If you intend to use a trust, there are four conditions that must apply for a trust to be an active and viable designated beneficiary.

First of all, this must be allowed under your state’s law, which could be determined by a discussion with your estate planning lawyer. Second, this must be in irrevocable trust, which means that the trust cannot be changed after it’s established or when it becomes irrevocable at your death. Third, beneficiaries must be identifiable in the trust document.

And finally, the IRA retirement plan administrator or custodian needs to have received a copy of the trust by no later than October 31st of the year following the IRA owner’s death. It’s a good rule of thumb to ensure that all of the beneficiaries of this trust are real people, rather than your estate or charities. This is because your IRA might not have any designated beneficiary if the beneficiaries aren’t people. Schedule a consultation with your estate planning attorney to learn more about the process of passing on your IRA with minimal tax consequences.


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