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California Estate Planning Attorney Offers Caution On Transferring Funds From an IRA to a Trust

Be careful with your California estate plan if an estate planning "expert" is advising you to transfer IRA funds to a trust. That estate planning technique could trigger a large tax bill that is due immediately if the trust is not set up properly.

A better estate planning option would be to consult a certified estate planning specialist and name a properly prepared trust as the beneficiary of your IRA. The advantages of creating a trust to receive IRA funds are many. For example, if you have minor, a trust is an excellent estate planning option to manage money for them until they reach an age where they can manage it themselves. Including a trust in your estate plan is also a good way to provide for disabled adult children, who may need assistance managing their financial matters and care. A certified estate planning specialist can provide the advice and counsel you need to make the best decision for you and your heirs.

Your estate planning attorney will have to ensure that the trust follows strict IRS guidelines known by estate planners as "conduit" or "see-through" trust rules. Your estate planning attorney can also design the trust to allow all of the IRA proceeds to pass through to the individual trust beneficiaries and avoid the higher trust rate of taxation. The estate planning attorney needs to ensure that the IRA proceeds do not get trapped inside the trust, or they will be subject to a higher tax rate than if they had been passed along directly outside of the trust.

One potential negative to this kind of estate planning technique is how it will affect a spouse who is a trust beneficiary. Your estate planning attorney can explain the installment drawdown a trust requires, which may not be as beneficial as a direct beneficiary and rollover into another IRA. One technique favored by estate planning attorneys is to use a direct rollover to a spouse upon your death, and then to a trust after your spouse's death.

If you would like more information concerning your estate planning options, consult a certified estate planning specialist who can walk you through the various options that an IRA trust may create for your estate plan. Whether your estate planning goals are immediate or long-term, a qualified estate planning attorney will be able to counsel you on the best options available to you to meet your individual needs.

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