IRA beneficiaries- My survivor trust or my children
My husband left me an estate heavy in IRAs. The question is how best to pass on the IRAs to my two children. Currently all IRAs are split between two accounts, each listing a single child as beneficiary. Our old financial advisor said upon my death, each account would pass to the listed beneficiary, and, if that child didnt take out money until 65 years old (e.g., continued to treat as IRAs) there would be no estate consequence. Just the income tax on the yearly distribution at hopefully a lower retirement age tax bracket for each child.
However, the replacement advisor (other retired) suggested combining into one account and listing my estate survivor trust as the beneficiary instead. She also said that even if kept in two separate accounts, the two children would have to take out all the money within 5 years.
I’m 80 with an estate worth about the 2-2.5 million. And I have the impression these financial advisors dont know what they are doing. Any suggestion of good people in the South Los Angeles/north Orange County are of California.
Thanks
Please advise what the rules are about IRAs and inheritance vs. beneficiaries.
Thank you
Permalink Submitted by Al Fry on Fri, 2009-01-02 15:48
I’ll let others respond to your questions, however your impression is correct. You seem to be more astute than your advisors.
Permalink Submitted by Michele Boddy on Fri, 2009-01-02 17:47
So what is the answer.
My advisor had me take out my mandatory IRA distribution this year and it was double that of last year (although my husband was laive for part of 2007). THus I’ve had a considerable tax bracket hike.
Also, while I’m 79, I have and aunt who is 95 and we are both in good health. So in the family have reached 100. However at this distribution rate I’ll be out of money in my 90s. Thus forced to sell my home to survive.
My daughter has read something about a “squeezing” exemption. Can I take advantage of this.
Please, I need to find someone in the Southern California are who knows what they are doing. Otherwise all my dear husband’s hard work to make sure I’m OK will be for nothing.
Thanks.
Permalink Submitted by mk foss on Fri, 2009-01-02 18:04
I know someone in Northern California – George Coughlin. He has a website http://www.iraplanning.com that lists a lot of information about IRAs. He also has a list of advisors; there may be one from Southern CA there. If not, you good email [email protected] and see if he has a recommendation.
George is an excellent advisor or I wouldn’t list his name here.
Permalink Submitted by Bruce Steiner on Fri, 2009-01-02 18:40
The lawyer who handles your estate planning should be able to advise you on this. Just because the financial advisor is not able to advise you on this doesn’t mean that he/she isn’t a good financial advisor.
It’s generally better to have one IRA with two beneficiaries because if you have two IRAs with different beneficiaries, one might end up larger than the other.
It’s rarely if ever a good idea to leave an IRA to one’s estate. You could leave your IRA to your children (with each child’s issue as backup for him/her, in case a child predeceases you, or a child decides to waive his/her share). Alternatively, you could leave each child’s share of your IRA to him/her in a separate trust. That would keep it out of the child’s estate for estate tax purposes, and would better protect it against the child’s creditors. In either case (assuming the trust is appropriately drafted if you leave it to your children in trust rather than outright), your children can stretch it out over their life expectancies (or, if in trust, most likely over the older child’s life expectancy), beginning upon your death. I wrote an article on trusts as beneficiaries of IRA benefits, in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf
If you take only your required distributions each year, you’ll never run out of money in your IRA, though as you get older you’ll be taking money out at a faster rate. If you have enough non-IRA money, you might consider (or you might want to discuss with your lawyer) converting some or all of your IRA to a Roth, either all at once, or over a number of years to avoid bunching the income. One of the benefits of a Roth is that there are no required distributions from a Roth. If you convert over a number of years, your accountant might estimate how much to convert each year so as to stay within your targeted tax bracket.
I don’t think it’s appropriate to recommend particular professionals in a forum such as this. But the lawyer who handles your estate planning might be a good starting point.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Jose Morales on Fri, 2009-01-02 22:23
One important question that might clarify things in my head, have you taken these funds into an IRA in your own name or have you moved them to “beneficiary IRAs” that still technically belong to your husband with you as the beneficiary?