My wife and I are both over 65 and are doing some estate planning. Can I transfer funds from a traditional IRA to a trust without immediately being taxed? What would be the tax consequences of making the trust the beneficiary of my IRA?
The reader’s best bet would be the second strategy — making the trust the beneficiary of his individual retirement account, says Natalie Choate, an estate-planning lawyer at Nutter McClennan & Fish LLP in Boston.
Still, there is a caveat we will get to in a moment.
To take the questions in order: Transferring funds from an IRA to a trust would “invariably cause immediate taxation,” because the transfer would be considered an IRA distribution, Ms. Choate says.
Note: Investors might encounter a technique espoused by some estate-planning experts, which in theory would allow for a transfer without triggering taxes. But the Internal Revenue Service has never specifically “blessed” the technique, Ms. Choate says. So, “most estate-planning lawyers would say you shouldn’t try it without getting a ruling from the IRS, which would be quite expensive.”