You’ve made all the right financial decisions. You’ve saved, you’ve planned, you’ve invested. But what if your heirs aren’t quite ready for the responsibilities and tax advantages that go along with inheriting your dutifully funded IRA? Your best bet for control from the grave may be a trusteed IRA.

Simply put, trusteed individual retirement accounts are a vehicle that provide a deceased or incapacitated owner with a high level of control over an asset. Designed for clients with an IRA of at least $1 million, a trusteed option establishes an executor to oversee the assets, which can be protected from large withdrawals and, in some cases, last over generations.

“These IRAs are particularly interesting for investors who don’t think they will need all their assets to support themselves in retirement and, therefore, plan to leave an IRA or IRAs to their heirs,” says Kimberly Foss, founder and president of Empyrion Wealth Management in Roseville. The tool has some of the estate planning advantages of a trust, but the costs to establish one can be high.

U.S. Bank developed a Heritage IRA last year to combine an IRA and trust agreement into one instrument that could help clients design a long-term, customized distribution plan for beneficiaries. U.S. Bank’s Heritage IRA offers the potential tax benefits of a traditional or Roth IRA plus the control of a trust, and it may help address a number of issues that arise during the estate planning process, says managing director of the Sacramento office Barry Brundage.

Just as with a traditional IRA, trusteed versions require minimum distributions; money has to be taken out of a trusteed IRA when a beneficiary reaches the age of 70-and-a-half, but they are designed to provide a long-term plan for withdrawals, Foss says. Owners can specify that beneficiaries can withdraw annually only the minimum amount required by the Internal Revenue Service. “That way, the account doesn’t get spent all at once and can continue to grow tax-deferred — or, if it’s a Roth account, tax-free,” she says.

Alternatively, the owner can specify that beneficiaries take only the minimum required distributions that “could create ongoing wealth,’’ Foss says. “Depending on the size [of the trusteed IRA], taking only required minimum distributions could stretch the IRA over several generations.”

The Heritage IRA “goes beyond the typical beneficiary-designation options of an IRA,” adds Brundage. He says, “It makes it possible to customize the amount and timing of beneficiary distributions, and it allows U.S. Bank to distribute funds over time and according to a discretionary standard,” such as a beneficiary’s health, education, maintenance or emergency needs.

For example, “Clients may use the instrument because they’re concerned about a beneficiary’s ability to manage money responsibly, or they want to stretch or extend the benefits over the lifetimes of their children and beyond,’’ he says. It also provides flexibility for blended families since the owner may want to provide for a current spouse and for children from both a previous and current marriage. The trusteed IRA makes the owner’s wishes clear.

The trusteed IRA is also helpful for Americans who have a spouse who is not a U.S. citizen and who want to qualify their IRA assets for the marital deduction, which allows the entire account to rollover to the surviving spouse without being hit by estate taxes, Brundage says.

That’s a benefit John Lockwood, a financial advisor with Northwestern Mutual of Sacramento, knows about first hand. Lockwood’s mother is not a U.S. citizen, so a trusteed IRA could be beneficial for his parents. Under current federal law, if an estate is valued at more than $5.34 million, a surviving, non-U.S. spouse is not eligible for an unlimited marital exclusion but is instead taxed on any assets over $5.34 million. If the surviving spouse was a U.S. citizen, the unlimited marital exclusion would allow the entire estate — regardless of value — to be passed to her tax free. However, any assets included in a trusteed IRA are not included in the estate tax valuation, so no taxes are levied on that amount, Lockwood says.

“The trusteed IRA gives my father control from the grave,’’ Lockwood adds.

The trusteed IRA is ideal “if you’d like to name multiple beneficiaries that are generations away,’’ and reduce the risk of your heirs “squandering the money,” while growing the assets on a tax-deferred basis, Lockwood says. “If the trust specifically says, ‘John doesn’t have access outside of the required minimum distribution,’ I don’t have access.”

But the benefits come at a premium. Depending on who you talk to, a person interested in setting up a trusteed IRA must have between $1 million and $2 million in an IRA. There are additional costs associated with this product because setting them up introduces up to four parties, Lockwood says. The attorney who is going to draft the trust may charge in the range of $2,000; the investment advisor that assures the monies grow and are managed properly may charge 1 percent annually; there is the tax accountant who has to file the tax returns on the trust; and in some cases, an independent advisor will administer the trust if a brokerage doesn’t offer trusteed services.

Still, Foss maintains that trusteed IRAs are less expensive than trusts, “because you do not need to involve lawyers for their creation or distribution. Also, when using a trusteed IRA, you don’t run the risk that an estate planning lawyer will set up a trust and fail to communicate with the necessary parties in order to fund it.”

With traditional IRAs, assets continue to grow tax-deferred, but the beneficiary is taxed at the current rate on any disbursements. Trusteed IRAs, on the other hand, can be taxed at higher rates because the trust technically receives the income — and trust tax rates may be higher than individual rates, he says.

“So those required minimum distributions could potentially be taxed at a higher rate than if the money was left just directly to me and I was in a lower tax bracket than the trust.”

Maintaining control is the biggest benefit of a trusteed IRA, concludes Lockwood, “and knowing the monies are going to do what you want them to do.”

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