Do I need to inherit IRA
Hi,
I posted previously on whether it was better to inherit a stretch IRA or funds from a taxable account. I am one of the heirs in this situation as well as co-trustee and POA on my Dad’s accounts. Thank you for the responses! My sister and I were able to get very specific information from the attorney and feel much better about the issue.
The estate attorney said that we can divide the assets between the heirs and we don’t have to give each heir IRA funds. We are currently planning to give two heirs funds in the form of a stretch IRA protected by conduit trusts. I can receive IRA funds this way as well or receive the funds from all taxable accounts.
I’m 50, single, female, and recovered from malignant cancer surgery. I have rental property. I’m just wondering if the protected stretch IRA (by a conduit trust) is a good way to receive the funds. This would provide protection from creditors, should something go awry with a rental and the lawsuit amount exceeds my insurance coverage. On the other hand, if my lifespan is reduced due to the cancer reoccurring, I don’t believe the stretch is computed on medical underwriting, just on age. I believe that I could get funds from the IRA for medical costs and we would make sure this wording is in all of the conduit trusts. I have other assets to help fund retirement.
Has anyone experienced this type of situation before? I have three times the chance of the cancer returning. I’m the flexible heir and can go in either direction, but can’t seem to get my head around the possibilities.
I’m meeting with my Dad and the estate attorney near the end of January and while we can will re-visit the whole estate plan yearly, we want to have the plan in place as soon as possible. Any comments or musings are welcome and appreciated. Thank you.
Permalink Submitted by Bruce Steiner on Mon, 2010-01-11 23:16
“We” can’t decide whether to leave the IRA and the other assets equally, or to leave one child more of one and another child more of another. But YOUR DAD can leave his IRA and his other assets to his children (or to anyone else) equally or unequally.
Conduit trusts rarely if ever make any sense. If the beneficiary lives to life expectancy, nothing will be left in the trust. All of the assets that would have been protected against the beneficiary’s creditors and out of the beneficiary’s estate for estate tax purposes if in the trust will have been distributed, will be included in the beneficiary’s estate for estate tax purposes, and will not be as well protected (if they are protected at all) against the beneficiary’s creditors. Is there some special reason for having conduit trusts in this case, especially given your concern about creditors?
As to the availability of the trust assets for medical expenses, each beneficiary’s trust can be as flexible or as rigid as to the items for which the trustees may or must or may not make distributions as your Dad wishes. Most of our clients make their children’s trusts very flexible, since there’s no way to know what the future will bring.
For more on trusts as beneficiaries of IRA benefits, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf.