An individual retirement account, or IRA, is designed to save for retirement. These contributions remain in the account until the owner of the IRA reaches retirement age, at which time she starts to receive payouts from the account. Any money that remains in an IRA after the death of the owner may be transferred into a family trust for further distribution.
The purpose of a family trust is to hold the assets of an estate for distribution at a later time. When assets are put into a trust, the person who sets up the trust determines when and how those assets are paid to the heirs. This prevents the inheritance from being paid out all at once.
People who have IRAs generally have already designated beneficiaries for those accounts. When the owner of the IRA dies, any funds that remain in the IRA are paid automatically to the designated beneficiaries. Most IRAs also list a secondary beneficiary in case the first beneficiary dies before the IRA pays out completely.
Designating a Trust
If the owner of an IRA wants the remaining funds to go into a family trust after death, the owner should designate the family trust as the IRA's primary beneficiary. If the trust is the primary beneficiary, the IRA automatically is transferred into the family trust when the owner of the IRA dies. At that point, the funds in the IRA become part of the trust account and can be paid out according to the trust payout schedule that is already established.
If the owner of an IRA does not designate the family trust as the IRA’s beneficiary, but he still wants the funds from the IRA to go into the trust, the person listed as the IRA beneficiary will be responsible for taking a cash distribution from the IRA and putting the money into the trust. If the money is transferred into the trust in this manner, the beneficiary must list the IRA distribution as part of his income for that tax year and pay taxes on the distribution.
Alexis Lawrence is a freelance writer, filmmaker and photographer with extensive experience in digital video, book publishing and graphic design. An avid traveler, Lawrence has visited at least 10 cities on each inhabitable continent. She has attended several universities and holds a Bachelor of Science in English.