You can name a trust as the beneficiary of your IRA. This will provide some control over how your IRA will be paid out to your survivors. Using a trust might make sense if:
* Your IRA will be inherited by someone who is inexperienced with financial matters. A reliable trustee you name will manage the money.
* Your intended beneficiary is now a minor. A trust can be the owner of the inherited IRA and the minor can be the trust beneficiary.
However, if you name a trust as IRA beneficiary and name your spouse as the beneficiary of that trust, you might lose a key tax break. Bequests to a spouse escape estate tax but that exemption might not apply if assets are left to a spouse via a trust.
In order for a bequest to a trust to qualify for the estate tax break, all of the trust income must go to the surviving spouse. No one besides the surviving spouse can receive any distribution from the trust as long as that survivor is alive. What’s more, when a trust is the beneficiary of an IRA, the trust document must state that the surviving spouse’s right to income includes the income from the IRA, in order to preserve the estate tax exemption.