Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, January 25, 2019

Book on Effective Use of IRA Assets in Estate Planning

IrabookSeymour Goldberg published a Book entitled Effective Use of IRA Assets in Estate Planning (includes IRS Compliance Issues and Asset Protection Planning) (2018). Provided below is an excerpt from the book. 

Advantages of the trust as a beneficiary:

1. If the IRA death benefits are payable directly to a designated beneficiary, then the death benefits may be accelerated at any time by the designated beneficiary.

2. If the IRA death benefits are significant and payable to the trust, then a knowledgeable trustee may take advantage of the extended payout period if the IRS trust documentation requirements are timely satisfied with the IRA institution. The IRS trust documentation requirements must be satisfied by October 31st of the calendar year following the IRA owner’s year of death.

3. A mature trustee will control the investments while the assets are in the IRA.

4. If IRA death benefits are payable to a trust they may be protected from the creditors of the designated beneficiary under state law or in a divorce proceeding.

5. If IRA death benefits are payable to a spendthrift trust they generally should be protected if the designated beneficiary declares bankruptcy provided that the spendthrift trust is recognized under state law. Most jurisdictions recognize spendthrift trusts.

6. If IRA death benefits are payable to a trust for the benefit of a minor, it avoids the jurisdiction of the probate court or a similar court that has jurisdiction over the minor’s assets.

7. If IRA death benefits are payable directly to minor, then the probate court or a similar court is involved. The probate court or a similar court may not go along with an extended payout period of the IRA distributions.

8. A client should consider making provisions in his/her will and/or other legal documents that exonerate nonprobate assets such an IRA from the payment of the IRA’s share of the estate tax liability provided that there are sufficient other assets and that this provision is consistent with the client’s estate plan.

Exonerating the IRA and other retirement assets from any estate tax liability will permit more tax deferred growth of the IRA and other retirement assets and the tax exempt growth of Roth IRAs. However, this exoneration approach is at the expense of other beneficiaries of the estate.

9. A trust for adult child may be necessary if the adult child cannot handle money or would not otherwise reimburse the executor of the estate for the estate tax liability attributable to the IRA on a voluntary basis.

10. The life expectancy of child or grandchild will generally result in a greater deferral of income then if the surviving spouse was the designated beneficiary of the IRA.

11. The children or grandchildren benefit from growth of IRA instead of the surviving spouse. This should save a considerable amount of estate taxes on the subsequent death of the spouse.

12. The trust may be used as an exemption trust for estate tax purposes.

13. As a result of the Tax Cuts and Jobs Act effective January 1, 2018, significant income tax savings may be available if IRA assets are payable to trusts for the benefit of children or grandchildren.

14. As a result of the Tax Cuts and Jobs Act effective January 1, 2018 significant estate tax savings may be available if the IRA assets are payable to trusts for the benefit of children or grandchildren.

https://lawprofessors.typepad.com/trusts_estates_prof/2019/01/book-on--2.html

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