IRA MoneyA new type of trust now allows your IRA monies to be paid out to your children and other heirs over their lifetime while protecting it from spendthrifts, creditors and even divorce.

In a 2005 private letter ruling ("PLR"), the IRS approved this new type of trust, which is created solely to serve as the beneficiary of an IRA account (although it may apply also to a Roth-IRA, a 401(k), and a 403(b)).  As a result of this private letter ruling, anyone with substantial assets in an IRA can now insure that their beneficiaries will be able to "stretch-out" the payment of those monies over their lifetime, thereby allowing those monies to grow inside the account without being taxed.  A further - and no less significant - benefit of this type of trust is that the monies remaining in the account will be protected from creditors, divorce, and even the spendthrift ways of the beneficiaries.

It should be noted, too, that a private letter ruling can not be used as precedent by anyone other than the person who requested the ruling.  However, the quidelines provided by the IRS in the private letter ruling clearly state the IRS' position regarding this type of trust arrangement.

This new type of trust is called by several different names, including an IRA Inheritance Trust, an IRA Stretch Trust, an IRA Protection Trust, an IRA Stretch and Protection Trust, an IRA Trust, and an IRA Standalone Trust - to name just a few. 

To read more about the pros and cons of this new type of trust, I'd recommend doing a google search for now.  There is quite a bit of general information on the internet, but no real in depth analysis at this time.  We'll keep our eyes open and report back when we have more information on this new type of trust, including specimen forms.  In the meantime, if you think that an IRA Stetch and Protection Trust might be helpful in your estate planning or if you have some information that might be helpful to our readers, please leave a comment below.