Information on your IRA and estate plan

By Robert K. Hilton III, Esq.
Posted 7/28/19

In today’s world, most people are retiring with IRAs rather than with defined benefit pensions. Attorneys now have to be more tactical with estate planning, as a majority of client’s estates …

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Information on your IRA and estate plan

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In today’s world, most people are retiring with IRAs rather than with defined benefit pensions.

Attorneys now have to be more tactical with estate planning, as a majority of client’s estates involve a large piece of yetto-be-taxed assets. In addition, IRAs are difficult since they cannot be transferred or gifted to anyone while the owner of the IRA is alive and they cannot be placed in a trust. As a result, IRAs pose some interesting and oftentimes misunderstood issues.

Not everybody is aware that IRAs are left to beneficiaries using a beneficiary designation and that they do not pass per the terms of a will. Current rules require a mandatory five-year payout on an IRA left to an estate, as opposed to the lifetime payout available to individual beneficiaries. Due to this, an estate should almost never be left as the beneficiary for an IRA. It should be noted that there is pending legislation which will require all IRAs to be distributed over a 5-10-year period; if this becomes the case, the lifetime stretch will no longer be available to individual beneficiaries and could change how some estates are planned.

Something to consider when designating the beneficiaries of your IRA is the beneficiary’s age. If IRA beneficiaries are minors, then we can use testamentary trusts (trust created under a will) or living trusts (trust created during the trustmaker’s lifetime) as holders of that IRA. This is particularly important if the beneficiary is under the age that the grantor deems appropriate, yet over the age of 18.

For instance, it is not unusual to hold assets in trust for a young beneficiary until age 25 or 30. The intent is to put third party in charge of the young beneficiary’s funds whose job is to oversee distributions of those funds. This too has its drawbacks, so this decision is one to pay close attention to. Another big concern seen in the estate planning world is an individual’s failure to put a contingent beneficiary on their IRA. If two married people designate each other as their primary beneficiary on their IRAs, and they die in close proximity in time or at the same time in a common accident, the IRAs will pass to their respective contingent beneficiaries.

If there are no contingent beneficiaries listed, then their IRAs will pass to their respective estates. This circumstance can open the door to litigation as to determining who passed first and because the families of each spouse will have differing opinions and goals for the money. It is important to ensure that contingent beneficiaries are listed clearly with your IRA administrator. Note: Careful planning and management of the beneficiary designations is critical in making sure that the IRA is passed on in a proper fashion.

Robert K. Hilton, is an attorney with the law firm of Hilton Estate & Elder Law, LLC, with offices in Utica, Boonville, Rome, Syracuse, Lowville and Gouverneur. He has more than 25 years of legal experience and currently concentrates in estate planning matters, including Wills, Powers of Attorney, Health Care Proxies, Revocable and Irrevocable Trusts, Asset Protection, Nursing Home/Medicaid planning and related litigation issues. He can be reached at 315-624-9600 for free initial, confidential consultation. Visit us on the web at: www.Hiltonlawny.com.

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