ira-inheritance-trust-newsBy Philip J. Kavesh, J.D., LL.M. (Taxation), CFP®, ChFC, California State Bar Certified Specialist in Estate Planning, Trust & Probate Law

Since I first rolled out my “IRA Inheritance Trust®” in 2001 and got the breakthrough positive IRS ruling in 2005 (PLR 200537044), many critics have circulated “alternative facts” about the trust that are simply untrue.

Unfortunately, no matter how often I’ve fought off these various unwarranted attacks, the same ones keep reappearing from the dark recesses of the internet.  Worse yet, these are believed as gospel by many estate planners who could otherwise be doing their clients and their practices a great service by preparing standalone IRA Beneficiary Trusts.

By way of quick background, an IRA Beneficiary Trust done properly can not only help ensure that individual beneficiaries maximize the potential income tax “stretchout” of an inherited IRA (meaning more money will be available later in life when they need it), but the trust can also maximize the protection of the inherited IRA from divorcing spouses, creditors, lawsuits, loss of government benefits and later estate taxes.  And, unless a client’s IRA is really small or will go all to charity, there really aren’t any good reasons not to recommend the IRA Beneficiary Trust.  (See “Ensuring the Stretchout”).  In fact, these following perceived reasons not to use and IRA Trust don’t hold water.

Alternative Fact #1: An IRA Beneficiary Trust will cause higher income taxes on distributions.

This assumes incorrectly that distributions get trapped in the trust and are taxed at trust rates higher than the beneficiary’s.  But, most trusts provide the Trustee the discretion to distribute IRA distributions out of the trust, so they can be taxed at the beneficiary’s rate (while the remaining IRA principal may be asset protected). Only in the event that the beneficiary faces serious asset protection issues (for example, is a spendthrift, has creditor problems or is receiving government needs-based benefits), would the trust mandate that IRA distributions be accumulated – – and in such cases a 10% or 20% higher income tax rate is a small price to pay to save the rest of the distributions.

Alternative Fact #2: IRA Beneficiary Trusts are complex and too much can go wrong.

The fact that use of such a trust is more complicated than outright distributions (naming individuals directly as IRA beneficiaries) or simply naming a Living Trust as beneficiary, is not valid grounds for avoiding IRA Beneficiary Trusts.  Taking that argument to its extreme, estate planners should never undertake any planning other than simple wills and living trusts!  With a good IRA Beneficiary Trust form and proper instructions (see all here), any practitioner can easily add this trust to his or her practice.  The only truly complex issue is seeing to it that the IRA beneficiary designation form is properly integrated with the trust, and that’s where getting a good financial advisor to assist you and developing a relationship with him or her can improve the service to your clients – – as well as your practice’s marketing and revenue!

Alternative Fact #3: There are simpler and less costly alternatives to IRA Beneficiary Trusts.

This statement is often made by annuity salespeople, as well as banks, broker dealers, life insurance and trust companies, who stand to benefit from some other IRA planning strategy.  They argue that utilizing an annuity “restricted beneficiary payout” or a “Trusteed IRA” can achieve the same results.  This is FALSE.  For more details and a side-by-side comparison of these three strategies, see the article “Ensuring the Stretchout”.

Alternative Fact #4: IRA Beneficiary Trusts are too difficult to get custodians to accept and to properly administer after the IRA owner’s death.

Until the PLR issued back in 2005, there was a time when many IRA custodians did not know what to do with them and how they would work.  However, today, most custodians (or their legal counsel) are now accustomed to the IRA Beneficiary Trust and accept them (or can readily be persuaded to, after citing numerous IRS Rulings).  Again, if the estate planning practitioner has the right training and tools, the IRA Beneficiary Trust is no more difficult to administer than the garden variety Living Trust.

With the pending death of the estate tax, many estate planners are in dire need of another service to add to their practice.  But, not only that, the IRA Beneficiary Trust is one of the best planning strategies to provide to your clients if they’re looking to maximize the potential wealth accumulation for their beneficiaries and protect their inherited IRA assets!  Whatever you do, don’t let these alternative facts get in the way of you adding IRA Beneficiary Trusts to your practice!


ira-inheritance-trust-kaveshThe Ultimate IRA Beneficiary Trust Bundle Package

IRA Beneficiary Trusts have become one of the best-selling estate planning strategies next to the Living Trust.  Understanding this unique planning strategy is not quite as simple as Living Trust planning.  Plus, you can have a trust form and a firm understanding of how to draft these trusts, but it doesn’t matter if you have no clients to draft them for!  Get everything that you need to successfully implement this strategy – – including the legal document form, technical training on drafting and post-death implementation, and marketing and selling standalone IRA Beneficiary Trusts – – into your practice!  >>MORE INFO

Everything You Need to Know About IRA Beneficiary Trusts 3-Part Series Program

Whether you’re a CPA, financial professional, or estate planning attorney, you will greatly benefit by joining us for this 3-part series.  This series includes:

  • The Traps & Tricks of Drafting IRA Beneficiary Trusts
  • The Proper Post-Death Administration of IRA Beneficiary Trusts
  • How to Market & Sell More IRA Beneficiary Trusts

When you register for this 3-part series, “Everything You Need to Know About IRA Beneficiary Trusts”, you will also receive complimentary registration to our brand new, special 90-minute presentation entitled, “The Standalone IRA Beneficiary Trust: An Introductory Overview”  absolutely FREE!  This is a great call to invite your professional referral sources to and jump start your marketing!  That’s an additional $169 value, just for signing up for this series!  >>MORE INFO



Attorney Philip J. Kavesh is the principal of one of the largest estate planning firms in California – – Kavesh, Minor and Otis – – which has been in business since 1981. He is also the President of The Ultimate Estate Planner, Inc., which provides a variety of training, marketing and practice-building products and services for estate planning professionals.

If you would like more information or have a question for him, he can be reached at phil@ultimateestateplanner.com or by phone at 1-866-754-6477.


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