INTRO: In Part One of this series, we discussed how the rules related to inheriting an IRA are often shrouded in mystery. Here is more advice about why people inheriting an IRA should obtain legal, financial and tax advice and proceed with great care before taking any action with respect to the IRA being inherited.
4) IRA inheritors choosing to keep an IRA must be very careful in giving instructions to the IRA custodian. If you are not the IRA owner’s spouse, the IRA must not be put into your name or touch your hands in any manner; rather, it must stay in the name of the deceased IRA owner, with you listed as the beneficiary.
5) An IRA owner needs to coordinate estate planning of other assets – e.g. via terms of a living trust and/or a Will – to make sure everything is integrated. Absent such coordination, unintended consequences can occur. For example, suppose a person has a $500,000 IRA and $1.5 Million of other net assets. The IRA owner has a Living Trust that provides for cash gifts of $100,000 to each of his five grandchildren ($500,000 total) and the balance to his children. The IRA owner is under the impression that the $500,000 IRA will satisfy the $500,000 of cash gifts to the grandchildren specified in his Trust. However, if no express language to that effect is stated in the Trust, the result will be that the grandchildren receive the $500,000 IRA from the IRA custodian as the designated beneficiaries and an additional $500,000 in cash gifts from the trustee of the Trust.
6) If you have charitable intent, consider the tax efficiency of designating a charity as beneficiary of your IRA. Unlike with loved ones, the charity will not incur the burden of paying deferred income tax when the charity withdraws the IRA assets.
7) If you have minor or young adult children, you should discuss with your estate planning attorney the pros and cons of naming your Living Trust, rather than the children directly, as beneficiaries or contingent beneficiaries of your IRA.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
ESTATE & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, “Summary” Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.