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Supreme Court Decision: Inherited IRA NOT Protected

A recent decision from the Supreme Court means there’s no better time than now to review your estate plans and ensure that you have identified the best possible solution for passing down assets to another generation. This new ruling states that inherited IRA funds DO NOT QUALIFY under the category of “retirement funds” under bankruptcy exemption guidelines. Previously, these kinds of funds might have been considered “bulletproof” from creditors, but this new ruling means it could be time to re-evaluate how you’re transferring your assets down to children and other beneficiaries. Is a Standalone Retirement Trust or IRA Trust right for me?

Supreme Court Decision Inherited IRA NOT Protected
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According to the Supreme Court, the members of which conducted reviews of the Bankruptcy Code to get more specifics on the situation, inherited IRAs should not count as retirement funds because the individual inheriting the assets cannot contribute to the funds or invest more money into them. Since the IRA also requires that the accountholder draw money from the account, the Supreme Court argued that this would “undermine the purpose of the Bankruptcy Code”.

Each client wishing to establish plans for the future transfer of assets to beneficiaries has their own concerns and situations, which is why it’s so critical that you work with a team of experienced planning attorneys to meet your goals and increase the chances that those assets will be protected and meaningful for the beneficiary. To review trusts and other options for asset transfer, email info@lawesq.net or contact us via phone at 732-521-9455

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Your IRA: Top Tips For Passing Down Your IRA To Children

Those who have spent a good amount of time contributing to their IRA might have questions when it’s time to decide beneficiaries. For example, is it best to stretch out the payouts over a lifetime to make the most of tax benefits or to withdraw the entire amount?

Your IRA Top Tips For Passing Down Your IRA To Children
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In many cases, an immediate emptying of the account is not in the best interest of the beneficiary, and it’s also something that parents may want to help their children avoid. Often, it’s difficult to suddenly manage a large sum of money, making Mom and Dad’s IRA benefits run out long before expected. Since many parents want to guard against this where possible, it’s important to note that two different strategies can help to stall an immediate withdrawal of all assets on the death of a parent.

One option is to name a trust as the IRA beneficiary, giving a trustee the power to distribute assets, but you must work with an experienced estate planner who knows how to craft a document that qualifies under IRS rules. Another option to consider is setting up the IRA as a trust account, giving trustee powers to the IRA provider, which is known as a “trusteed IRA”. This option, however, does have some downsides: higher fees and requirements for minimum balances are two of those disadvantages.

Options exist to help you plan for your future and to help beneficiaries receive assets in a somewhat-structured manner. To learn more about these planning tools, call us at 732-521-9455 to get started.

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Wisely Select Your IRA Beneficiary

If you have spent your working and pre-retirement years pouring into, rather than having to tap into, your retirement savings, congratulations! You’re on your way to being set up for success. Before kicking back and relaxing, though, it’s worth conducting a review to see how you’ve set up the beneficiary on your IRA. There are possible estate tax and income tax risks for you and your chosen beneficiary.

Wisely Select Your IRA Beneficiary
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For non-Roth retirement accounts, you’ll want to factor in how long the beneficiary will push off distributions, the required minimum distributions, and the possible income tax bracket for that individual. All of these factors ca give you a window into the tax liability for the beneficiary. The majority of the time, RMDs will kick in pretty soon after a retirement plan is inherited. That depends on the oldest beneficiary, however, so the younger your beneficiaries are, the better off they’ll be. With smaller RMDs, there’s better opportunity for them to benefit from tax-deferred growth in the retirement account they are inheriting.

If you list your spouse as the beneficiary, which many people do, bear in mind that this could will increase their own taxable estate (although you’ll be able to transfer to your spouse estate tax free). Any beneficiaries outside your spouse will probably mean that your retirement account is included in your estate. Have you considered Stand Alone Retirement Trust? To learn more about the best planning strategies for your retirement account and asset protection needs, send us an email to info@lawesq.net or contact us via phone at 732-521-9455 to get started.