You cannot engage in estate planning today without considering your Individual Retirement Account(s) (your IRA’s) and other retirement accounts. Ironically, we often find that these are the most significant assets in a person’s estate, and yet these assets are given the least attention.
Even worse, most estate planning attorneys don’t help you plan in conjunction with your IRA’s. Why? Because they haven’t been trained how to help you in this area. Instead, most attorneys will tell you that your IRA passes outside of your will or living trust, and that the IRA asset will go directly to the beneficiary or beneficiaries you’ve chosen… case closed.
Most estate planning attorneys do not understand that it doesn’t have to be that way! Without better planning, your heirs can withdraw the entire IRA principal, which doesn’t allow for growth of the funds. Further, if the IRA is significant in value and you distribute it outright, it is exposed to your heirs creditors, spouses, and themselves (think: are your children spendthrifts?).
By having your IRA distributed to a trust, you are ensuring much greater creditor protection, protection from divorce, spendthrift children, etc. You’re telling your heirs that you love them and want the best for them.
Furthermore, a trust encourages (if not mandates) that heirs only take the required minimum distributions of the IRA. If set up correctly, these required distributions are measuring on the life of your heir. For example, want to leave your IRA to a 4 year old grandchild? That grandchild’s required distributions will be a lot less than a 40 year old, allowing great “stretch” opportunities.
Few attorneys understand the complex rules and requirements to ensure this is all done correctly. Many will say you can’t put the IRA into a trust. That is incorrect. We’ve been trained by nationally recognized experts on this subject, and we can assist you in making sure all of the pieces of your plan fit together.
One more thing… why is this area complex? Mostly because the IRS wants to encourage people to spend down their IRA’s. Therefore, the tax laws discourage people from passing on an IRA in such a way that allows for the asset to be a wealth transfer tool. It’s not that you can’t do it. It’s just that the IRS makes it tricky for attorneys to do. Proper language must be used on the beneficiary designation form and in the trust.
Need a review of your IRA and your estate plan? Let us assist you.
Let our firm assist you: Our firm offers a complimentary estate plan review and consultation. Please call us today at (215) 706-0200 or email us.
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