IRA is the majority of my estate

Submitted by wesley rude on Fri, 2015-08-07 07:37

My financial adviser attorney had me set up a living trust and my children are listed as beneficiaries of the trust. My brokerage firm insists this will cause an immediate taxable event the way it is set up. My attorney claims the way he has structured it, so it is not a taxable event. After reading your site it appears to be taxable. My brokerage firm says I should list each beneficiary on their forms and then they can easily transfer the stock directly to their own IRA accounts at the broker dealer.

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Permalink Submitted by Alan - IRA critic on Fri, 2015-08-07 16:03

Don’t take tax advice from a broker unless you are talking to their tax Dept. Ask your attorney if the trust is qualified for look through treatment, because it will be costly if it is not. The trustee of the trust can have the IRA assigned to the trust beneficiaries if the trust allows it. Otherwise, taxes are only due when a distribution (RMD or otherwise) is taken from the IRA. Why do you think there would be a taxable event upon your death?

Permalink Submitted by Bruce Steiner on Sun, 2015-08-09 01:06

What is a “financial advisor attorney?”

Living trusts are overhyped and oversold. While they’re appropriate for some people, and in some states (they’re common in California for reasons specific to California), for most people, in most states, they’re unnecessary, and tend to be a distraction.

Even if a living trust is appropriate in this case, there’s nothing to be gained by having the IRA payable to the living trust and then to have the living trust immediate terminate and distribute its assets to the children. Depending on how the trust is drafted, it may not cause any problems, but since it won’t produce any benefit, if the goal is to have the IRA go to the children, it would be simpler to name the children as the beneficiaries of the IRA.

If the IRA (and the other assets) go to the children outright, the children’s inheritances will be included in their estates for estate tax purposes, and will be exposed to the children’s creditors and spouses. The IRA owner could instead leave the IRA (and the other assets) to the children in separate trusts for their benefit, either under the Will or under a separate trust instrument. This will keep the children’s inheritances out of their estates for estate tax purposes, and will better protect their inheritances against their creditors and spouses.