Historically, most individual retirement accounts are structured as a “custodial” account, but the Internal Revenue Code permits IRAs to be structured as trust accounts as well.
The benefit of using a “trusteed IRA” is that the account is literally controlled by a trust document, which both ensures continuity in the form of a trustee that manages the account, and can restrict beneficiaries’ future access to the money after the original IRA owner dies (either to protect them from themselves, or to protect their IRA inheritance from potential creditors).
The caveat, however, is that a trusteed IRA really doesn’t provide any benefits that can’t already be accomplished with a (separate) trust as beneficiary. And in fact, having a standalone trust drafted to be the beneficiary of a retirement account can provide even more flexibility, or more robust spendthrift and asset protection for future beneficiaries.
Nonetheless, the ranks of trusteed IRA providers have been growing in recent years, in part because the trusteed IRA is highly appealing from the perspective of the IRA provider – because, as the trustee of the IRA itself, it’s very difficult for future beneficiaries to ever fire the trustee or transfer the account to another provider, allowing the trusteed IRA provider a greater likelihood of retaining the assets than a traditional custodial IRA provider. In addition, it’s notable that while drafting a separate trust as beneficiary of a retirement account has a non-trivial one-time upfront cost, it may still be less than paying ongoing fees for the trustee to manage and administer the trust for what could be decades into the future.
The trusteed IRA may still be appealing in situations where the IRA owner wants to outsource investment management for beneficiaries, is comfortable with the “risk” that beneficiaries may have trouble changing providers anyway, and simply cannot find a competent attorney who can draft a proper conduit or accumulation trust to serve as the IRA beneficiary instead. Yet ultimately, for those who do have access to competent legal counsel as part of the estate planning process, a well-drafted trust as IRA beneficiary can accomplish everything a trusteed IRA provides, and potentially more estate planning strategies as well!
source https://www.kitces.com/blog/trusteed-ira-providers-costs-and-benefits-comparison-to-separate-conduit-trust-as-beneficiary/?utm_source=rss&utm_medium=rss&utm_campaign=trusteed-ira-providers-costs-and-benefits-comparison-to-separate-conduit-trust-as-beneficiary
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