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Trust as Beneficiary of IRA Is Popular –

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?

Ken Hartmann

Omaha, Neb.

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.”

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