A client announced his only son would be getting married later this year. He’s a proud father and is looking forward to becoming a grandfather. It also has him thinking about his future grandchildren and how important financial planning is. There are many ways we can better protect our children and our grandchildren from a financial stance. We do everything we can to keep them safe for as long as we can from an emotional and physical perspective, but when it comes to planning for the future – college funds, help with the down payment on their first home, covering the bases if something should happen to us – well, it can become overwhelming.
IRA Beneficiary Trust
One of the better strategies is found in an IRA beneficiary trust. By naming your child or children as beneficiaries, when a parent with an IRA dies, those children receive the benefits of the assets in the account. IRS Code requires that all beneficiaries who are not the spouse begin taking minimum distributions from the IRA by the last day of the year in which the parent died. Most times, those distributions are based on calculation formulas using the child’s life expectancy. That’s only the minimum, though, and the child can withdraw anything above that – including the entire balance – at any time. An IRA beneficiary trust allows the IRA account holder to provide instructions for distribution of IRA assets and minimum distributions to children. In other words, there’s flexibility so that the trust serves its purpose over the years.
One reason IRA trusts are often an ideal choice is because of the layers of protection they offer. One example of those protections is found when parents want to be sure that their wealth will pass to children (or grandchildren) with no worries about creditors, former spouses or even a bankruptcy filing claiming the majority of the benefit.
Risks, Benefits and Complications
To be clear, there are a number of intricacies involved with these estate planning tools and the attorney setting up the trust should be very familiar with terminology specific to inherited IRAs. Our team of estate planning lawyers have the legal expertise to ensure you understand the benefits, risks and in some instances, the complications that inherited IRA terms can often bring. We can help you understand those dynamics as well as the pros and cons – if any – for your particular situation while providing guidance on how to include it in your overall estate plan.
Other Estate Planning Tools
Parents who are exploring all of their options for the benefit of their children might also consider the many advantages of a revocable living trust, retirement plan trust or the traditional education trust.
We stand ready to answer all of your questions so that when your time comes to celebrate a new addition to your family, you already have a solid foundation in place that will help ensure a strong start for their lives.
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- Roth IRAs Can Be a Great Planning Strategy: Basics - July 22, 2021