Sep 1, 2009 12:00 PM

, By Edwin P. Morrow III

There are many reasons this choice might work best for your clients

By Edwin P. Morrow III

Experienced estate-planning practitioners know that the promise of the stretch IRA — to prolong the account's tax-deferred or tax-free status thereby allowing its assets to grow — often is thwarted if a trust isn't used to guard against beneficiaries. Too often, beneficiaries who receive retirement plan assets outright sabotage the stretch by withdrawing more than the required minimum distributions (RMDs), if not the entire amount. Trusts are needed to keep larger retirement funds in the family bloodline, ensure maximum income tax deferral, use generation-skipping leverage and provide asset protection benefits. Unfortunately, the income tax rules regarding the use of trusts for retirement benefit bequests are at times illogical, unclear and, even when clear, sometimes problematic.¹

Luckily, another option is increasingly available: the trusteed IRA. After the IRA owner's death, there can be tremendous estate-planning advantages to a trusteed IRA — provided the IRA provider is advanced, the IRA trustee is flexible, and the owner opts for robust beneficiary designation planning. Indeed, a trusteed IRA can combine many of the estate and asset protection planning advantages of a trust while ensuring the simplicity, compliance and income tax benefits of an ordinary IRA. In essence, an IRA owner can create a conduit trust without the complexities of a separate instrument.