Kaye Dent

Columnist Kaye Dent, an attorney, explains the options and decisions to think about when it comes to planning on how you're lifelong savings are passed on.

Is an IRA Part of Your Estate? Here’s Why You Should Consider a Trust

Is an IRA Part of Your Estate? Here’s Why You Should Consider a Trust

Chances are you have at least one Individual Retirement Account (IRA). You probably have more. For most Americans, IRAs are very useful and advantageous retirement savings vehicles. An IRA can also allow for easy transfer of wealth to your spouse or children.

Or is it so easy?

What if your spouse is disabled when you pass away? Do you both have estate plans that clearly define disability and place a person or corporate fiduciary you trust in charge of your assets if you are disabled and when you die?

Do you have any minor or disabled children? Leaving your IRA directly to them could be a disaster. Why? Who is generally in charge of a minor’s assets? Answer: The minor’s parents. If you are divorced, this means that your ex-spouse could control what your child inherits from you. Is that what you want?

Likewise, if you are seeking to benefit grandchildren through your IRA, do you want either of their parents (your child, his or her spouse or ex-spouse) handling decisions?

One of the big decisions concerning an inherited IRA is whether to liquidate (and likely pay related income tax) or “stretch out” the payments over time. Most of us hope that our children will take advantage of the stretch out, but the sad fact is that most won’t. You may trust your child to make good decisions, but do you trust that he won’t be influenced by people around him, including a spouse?

Remember: Often it’s not the general ability of the inheritor to use common sense, but the ability of the inheritor to use common sense when dealing with a large bucket of funds, often more than he’s handled before.

Only an individual can own an IRA, but a trust can be a beneficiary of an IRA. A trust is an estate planning tool which is effectively a set of rules for how assets are handled. Some trusts provide rules for handling assets during your life, your disability, and/or your death.

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By naming a properly drafted trust as the beneficiary of your IRA, you can control how the IRA is handled after your death. Your spouse, children, grandchildren, as you choose, can be the beneficiaries of the trust, but they won’t directly control the IRA. A trustee will be in charge of decisions, but your family can still enjoy the funds in a responsible manner.

The Internal Revenue Service (IRS), as you know, makes the rules that govern IRAs, so a trust established for this purpose must comply with the IRA rules. You will need to work with an attorney familiar with these rules.

To recap:

If you are planning to leave an IRA to a person with special needs, a minor, or have a blended family, it may be wise to consult with an attorney experienced with IRA trusts.

The attorneys at Frisse & Brewster Law Offices are here to help.

This article is not intended as legal advice but is provided for informational purposes.  Always consult with an attorney experienced in dealing with situations similar to yours. Frisse & Brewster Law Offices are located in Paris and Effingham, Illinois and Terre Haute, Indiana. 

Editor's Note

Remember most trusts do not protect your estate from the financial costs and burdens of Long-Term Care. Because of longevity, you should consider having a plan to address these costs which will impact you, your family, your savings and your lifestyle.

Long-Term Care Insurance will safeguard your IRA, 401(k) and other savings as it reduces the tremendous stress and burdens which are placed on family members when you fail to plan.

Caregiving is hard on loved ones. Paid care drains savings and adversely impacts income and lifestyle. Many states offer special partnership Long-Term Care Insurance plans which provide an additional dollar for dollar asset protection.

Make getting older easier on your family by adding a Long-Term Care Insurance policy to your plan. These policies are easy, affordable and rate stable income and asset protection.

You should start your exploration of options by finding the cost of long-term care services and supports in the state you live in or plan on moving to in the future. You can also find the availability of partnership plans and tax-incentives which may be available to you. Click here and find your state on the LTC NEWS MAP.

Most financial advisors and general insurance agents are not well-informed on Long-Term Care Insurance and planning, underwriting, partnership benefits, and claims. LTC NEWS can help you find a qualified specialist by clicking here.

The best time to plan, according to experts, is prior to retirement when you have the most available options.

About Kaye Dent

Kaye Dent is an attorney with Frisse & Brewster, a law firm with offices in Illinois and Indiana (www.frissebrewsterlaw.com). A graduate of Hofstra University School of Law she specializes in Elder Law and Estate Planning Services. She is a member of Wealth Counsel, Elder Counsel, and National Academy of Elder Law Attorneys. She can be reached at 217-465-1234 or by email: kaye@frisselaw.com

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