Custodial accounts give the IRA owner legal control and it’s impossible for anyone else to make decisions or take actions without first consulting him/her.
However, sometimes an IRA must transcend individual beneficiary ownership limitations in order to provide support for someone such as a minor or an individual with special needs.
Custodians for Individual Retirement Accounts can be invaluable assets to a retirement plan, safeguarding assets from mismanagement while adhering to IRS rules for beneficiaries and offering professional management in case of incapacity or death of the IRA owner.
Selecting an IRA custodian is one of the most crucial steps you’ll take when setting up a retirement account. If you plan to self-direct, selecting one who allows alternative investments such as private loans, real estate or precious metals is also key.
Fee schedule, levels of service and security protocols should all be taken into consideration when choosing an IRA custodian. Fees can add up quickly so it’s essential that you understand how they are charged – such as annual account maintenance fees, load and trade commissions as well as self-directed IRA fees which require higher documentation requirements and greater levels of support from their service provider.
Trusted Individual Retirement Accounts are Individual Retirement Accounts which operate like trusts instead of custodial accounts held by Financial Institutions, making an important distinction regarding what will happen when their original owner passes away.
If an IRA is in a trusteed trust, its successor trustee will manage it according to its governing trust document. This differs from a non-trusteed IRA wherein Financial Institution acts as custodian without direct control from beneficiary (unless specified otherwise in an inherited IRA trust document).
Trusted IRAs require more work and additional costs associated with setting them up and managing them than custodial accounts, with legal drafting costs often being the biggest deterrent from trust creation; additionally, fees that must be paid to trustees for investment management services also add up quickly.
IRA Beneficiary Designations
Beneficiary selection for retirement accounts is of great significance. Your finances and personal circumstances may change over time, making it essential to regularly review them and amend as necessary.
IRAs can either be set up as custodial or trust accounts. With custodial accounts, their owners maintain full control while trustees oversee them.
If you choose to name one or more beneficiaries on your Schwab account, it is essential that they adhere to appropriate naming conventions. For instance, if one of your children predeceases you and is named as primary beneficiary, then when they predecease one another they must either rename another child as primary or add a per stirpes clause (which will distribute assets between survivors in proportion to remaining survivors). When setting up trust-as-beneficiary strategies it is critical that legal and tax experts verify it meets all applicable IRS requirements.
IRA Asset Management
After the death of its original owner, an IRA trustee plays an essential role. An individual inheriting a custodial IRA can withdraw at will while one set up as a trust document must comply with its terms.
An inherited IRA provides asset protection benefits through features that restrict who can take RMDs, access other beneficiaries, and restrict use by creditors in case of unpaid debt or judgments. Such features add further safeguarding capabilities of an inherited IRA.
Trusteed IRA providers should take great care in independently verifying account statements, particularly regarding alternative investments that can be difficult or even impossible to value. By doing so, this step will help prevent errors while assuring compliance with DOL’s final fiduciary rule.