If you have named your children as beneficiaries of your qualified plans (IRA, ROTH, 401k, TIAA-CREF, etc.), you have likely made a mistake. An outright beneficiary designation needlessly exposes the IRA to your children’s spouses, to their creditors and future inheritance and estate taxes. Since 2006 Congress has provided the tools necessary to protect your children.
In 2006 Congress required that all qualified retirement plans—including IRAs, SEP-IRAs, 401(k) plans, and 403(b) plans—must allow naming an IRA Trust as a beneficiary. By doing so, Congress allows you to form an IRA Trust for your child that allows the Inherited plan to remain tax-deferred.
Because your child does not own the Inherited IRA, the trust provides shelter from your child’s creditors as well and divorce complications. Further, the IRA Trust excludes the IRA from your child’s estate for death tax purposes. As a bonus, you may dictate that any amount remaining at your child’s death passes to your grandchildren, thereby avoiding your daughter-in-law or son-in-law.
The IRA Trust provides tremendous benefits for your kids with little ongoing costs if the child serves as the trustee.
In short, IRA Trusts provide huge benefits at low cost. The reason you have not heard about them is likely because the rules surrounding IRAs are very involved, which cause many professionals to avoid the issue. This avoidance could cost your family dearly.
If you have any questions about IRA Trusts or any other estate planning topics, please contact our office to schedule a free consultation. For more than two decades Klenk Law has focused only on Estate Law. We’ve seen it all, and this experience allows us to explain complex estate planning techniques clearly and concisely. We make it easy for you to understand IRA Trusts and estate planning so you can make the best decisions for yourself and your family.
Peter Klenk is the founding member of Klenk Law, a seven attorney boutique estate planning law firm. We serve clients in Pennsylvania, New Jersey, New York, Minnesota and Florida. Peter Klenk received his Masters in Taxation LL.M. from NYU Law School and his J.D. from the University of Minnesota Law School. He served his country in the Navy JAGC during Desert Storm. Easy to talk to, feel free to call Peter for an appointment. We will make the process as easy as possible!
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Peter Klenk & Associates is my go-to firm for estate planning and advice in probate and estate administration. Peter and his attorneys are top-notch and exceptionally responsive. Peter has the knack of being able to explain extremely complex tax and estate planning issues in a manner that clients are easily able to understand and comprehend allowing them to confidently make important decisions.
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