Can You Put Retirement Accounts in a Trust in Florida?

At The Siegel Law Group, P.A., our knowledgeable attorneys, who have over 100 years of combined experience helping clients create an estate plan that protects their loved ones and gives them peace of mind, often hear this question:

“Can you put retirement accounts in a trust?”

Whatever your financial goals and whether you have IRAs or another type of retirement account, understanding the intricacies of an IRA Trust, also known as a Retirement Trust, and the important factors involved will help you make smart decisions for every beneficiary.

Generally speaking, a Living Trust is a great way to protect assets, avoid Probate and distribute assets efficiently. However, when it comes to IRA assets or assets from another retirement account, working with a Boca Raton, Florida Estate Planning attorney will help you follow the rules and structure the Trust properly.

This blog explains the role of a Living Trust and how it works with respect to IRAs and other retirement assets. Continue reading to learn more, then contact us at (561) 955-8515(561) 955-8515 to schedule a complimentary consultation. Our legal team is here for you and by your side 24/7.

What is a Living Trust in Florida Estate Planning?

A Living Trust is a legal entity that holds assets during your lifetime and distributes them to your beneficiaries after your death. It helps avoid Probate when you pass away, meaning your loved ones can receive their inheritances quickly and privately without court involvement.

How Does an IRA Trust Work?

An IRA Trust is designed specifically for the purpose of receiving and managing inherited retirement accounts, including IRAs, 401(k)s, and other types of qualified plans.

When you pass away, the Retirement Trust becomes the owner of your retirement account and continues to receive required minimum distributions (RMDs) from the account. The Trust then distributes the funds according to your instructions, providing tax efficiency and asset protection for your beneficiaries.

Because it’s a Revocable Trust, the IRA owner can alter it up to the time of their death. It’s important to keep in mind that the IRA owner cannot transfer IRA funds into a Retirement Trust. Instead, they can designate the Retirement Trust as the beneficiary and outline the terms of the IRA funds upon their death. Once distributed to beneficiaries, IRA funds lose their protection. An IRA Trust protects these funds as long as they remain in the Trust.

What are the Two types of IRA Trusts?

Florida residents can choose between two primary types of IRA Trusts: the Conduit Trust and the Accumulation Trust.

1. Conduit Trust: The Conduit Trust structure requires distributions from the IRA to pass directly to the Trust beneficiaries. It benefits individuals who want the required minimum distributions (RMDs) from the IRA to pass immediately to the Trust beneficiaries.
2. Accumulation Trust: In contrast to the Conduit Trust, the Accumulation Trust offers greater flexibility because it allows the Trustee, who manages assets, to retain the distributions within the Trust instead of distributing them right away to the beneficiaries. This type of Trust can serve your purposes when your beneficiaries may not need immediate access to the distributions or you have specific concerns relating to Asset Protection and wealth preservation.

Income Tax, the SECURE Act and the Role of a Retirement Trust

Some retirement accounts funded with pre-tax dollars, including a traditional IRA, are taxed on distributions. However, your beneficiaries may not understand how this works and receive an unwelcome surprise when they have to pay substantial taxes on the distribution in April. This fact may be even more difficult to handle if they have already spent the money.

To complicate matters, the U.S. government passed the SECURE Act in 2019, which became the SECURE Act 2.0 in 2022. This legislation rewrote the rules pertaining to the duration of the time period over which an inherited retirement account can be distributed. Before the government passed this law, distributions were “stretched” over the beneficiary’s life expectancy. However, distributions to non-spouse designated beneficiaries must be accomplished within 10 years from the date that the beneficiary accepted the inherited IRA.

Per the SECURE Act, eligible designated beneficiaries—which include the IRA owner’s spouse, children under 18, disabled or chronically ill individuals and any other individual who is not more than 10 years younger than the deceased IRA owner—must withdraw the IRA balance over the beneficiary’s life expectancy or the owner’s life expectancy, whichever is longer. A surviving spouse can choose to withdraw IRA funds after their spouse dies according to their life expectancy or roll the inherited IRA into their IRA.

The 10-year time frame for non-spouse designated beneficiaries could lead to larger distributions during a given year—and more tax liability, particularly in cases where the distribution puts the beneficiary into a higher tax bracket. That’s where a Retirement Trust assists with proper management of distributions and tax liability.

Florida Estate Planning and Retirement Trusts

The complexities of a Retirement Trust stem from its unique legal and tax considerations.

• Legal Requirements for an Eligible Designated Beneficiary: In Florida, the beneficiary of a Retirement Trust must be an identifiable person, not a charity. Additionally, the Trust must comply with specific IRS regulations to maintain the tax-deferred status of the IRA assets.
• Structure and Administration: Establishing and maintaining an IRA Trust requires the Grantor to carefully consider the Trust’s structure, Trustee selection and compliance with Florida state laws pertaining to Trusts and Estate Planning. The Trustee has the responsibility of managing the IRA distributions and fulfilling legal requirements.
• Spousal Rollover Benefits: When applied in the right way, spousal rollover benefits can extend the tax benefits of the IRA Trust over your spouse’s lifetime. Spouses can roll over an inherited IRA into their own IRA or treat it as their own, giving them more flexibility and control over assets.
• Separate IRA Trusts for Beneficiaries: Creating separate IRA Trusts for beneficiaries can be an excellent way to customize the distribution of IRA assets, protect the assets from creditors and potentially maximize each beneficiary’s tax benefits. A tailored approach allows you to manage the inherited IRA funds as you see fit and helps ensure asset distribution according to your wishes.

Because of the intricacies of IRA Trusts, consulting a knowledgeable Estate Planning lawyer will help you structure them properly, according to your wishes.

Tax Deferral Benefits and  Florida Retirement Trusts

Retirement Trusts can offer tax savings through various strategies and structures, including:

• Charitable Remainder Trust (CRT): A CRT is a tax-exempt Trust that can accept IRA assets with no immediate tax consequences. The Trust pays out annual annuity or unitrust distributions, for potential tax advantages.
• Distribution Taxation: Remember that the distribution from an IRA, whether categorized as Trust account income or not, is still taxable. Proper Estate Planning and structuring of the IRA Trust can alleviate tax consequences for the beneficiaries.
• Florida State Tax Environment: Florida does not have personal income tax, inheritance tax, or estate taxes; however, federal tax rules generally apply. However, understanding the federal tax consequences and opportunities for tax-efficient wealth transfer through an IRA Trust can help you maximize tax savings.
• Beneficiary Tax Considerations: A Trust beneficiary may not benefit from the same tax savings as individual IRA beneficiaries. To optimize tax savings, you must structure the IRA Trust and its distributions carefully to achieve the best tax savings for the beneficiaries.
• Strategic Legacy Planning: Utilizing an IRA Trust as part of a comprehensive Estate Plan facilitates tax-efficient wealth transfer, asset protection and customized distribution strategies that cater to your specific beneficiaries’ unique circumstances and yours as the account owner.

Secure Your Legacy Today. The Boca Raton Estate Planning Lawyers at The Siegel Law Group, P.A. Offer Protection for Your Loved Ones, Peace of Mind for You

Thanks to the complexities of federal estate taxes and the importance of protecting your specific beneficiaries, consulting an attorney with profound knowledge and experience with structuring Retirement Trusts is critical.

With a combined 100 years of experience, The Siegel Law Group, P.A. in Boca Raton, Florida is prepared to guide you through every step of the Estate Planning process. Our dedicated attorneys help South Florida families, seniors and their loved ones prepare for the future with tailored solutions such as Irrevocable Trusts, Revocable Trusts, Wills, Medicaid Planning and Special Needs Planning. We can also assist with the Probate process and Trust Administration.

Contact us at (561) 955-8515(561) 955-8515 or complete our online form to schedule a complimentary consultation.

I also invite you to pick up a copy of my book, Caught in the Middle: Juggling Your Elderly Parents’ Affairs While Raising Your Own Family, for just 99 cents for information about Elder Care and Medicaid Planning.

The Siegel Law Group, P.A. ~ Here for you and by your side 24/7.

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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.

The Siegel Law Group, P.A.
2500 N Military Trail Suite 470
Boca Raton, FL 33431
(561) 955-8515(561) 955-8515
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