Last Updated Sept. 15, 2017: Estate Planning For IRAs.
The IRA Trust, An Underutilized Estate Planning Tool.
When assembling an Estate Plan, too often the plan forgets to address Estate Planning for IRAs. The IRA, or other qualified plans, often make up a large portion of the estate. Forgetting to include the IRA in the estate plan can lead to tax adverse consequences.
To ensure that your money passes on only to your direct descendants, consider forming an IRA Trust.
All qualified plans (IRA, Roths, 401ks, SEPs, TIAA-CREF, etc.) allow you to name a beneficiary to receive the plan at your death. But, if this person is your child, they will have the chance to defer income tax recognition by converting the plan into an “Inherited IRA”. BUT, with an “Inherited IRA” your child, not you, has the ability to name a beneficiary. And it is likely this beneficiary will be your daughter-in-law or son-in-law rather than your grandchildren.
With An IRA Trust, You Control Who Inherits the IRA at Your Child’s Death.
By forming a well crafted IRA Trust for your child and naming this IRA Trust as the beneficiary of the qualified plan at your death, the trust will own the IRA for your child’s benefit. Thus, the Trustee can elect to stretch the IRA over your child’s lifetime. This provides the exact same income tax benefits that your child would have received as the owner. But, the IRA is held under the IRA Trust’s tax ID, not the child’s social security number. The Trust owns the policy, not your child.
This is beneficial because if you form the trust, YOU have the power to name the beneficiaries that follow your child. If you prefer the funds stay in your bloodline, you can name your grandchildren. At your child’s death, the funds are then immediately available to provide care to your grandchildren. This excludes your daughter-in-law or son-in-law.
See My Website for more Information about IRA Trusts.
Estate Planning for IRAs, Explained.
In conclusion, in this Post, I tried to introduce Estate Planning for the IRA. So, let me know how I did, comments and questions are welcome!
I would be happy to give you a more detailed explanation of the IRA Trust. Feel free to contact our office to set up a free confidential consultation.
Wills, Trusts, Probate, and Estate Litigation…it’s all we do!
Author, Peter Klenk, Esq.