Divorced-Protect Child As IRA Beneficiary
I have one minor child and I am divorced. How do I state the beneficiary for my Roth and classic IRA’s so that my child would have the proceeds protected from the other spouse that has custody?
I would like the child to be able to stretch the payout on these IRA’s.
Also, my parents are still alive and in their 60’s whereas the child is going on 4. They are willing to help in any legal way by being some kind of beneficiary, or guardian or whatever you advise.
Permalink Submitted by Bruce Steiner on Thu, 2008-02-28 22:42
If you name some other adult as custodian for your child under the Uniform Transfers to Minors Act as the beneficiary, that will protect against the custodial parent. The child will gain control at age 18 or 21 or 25 (depending on state law).
If the amount is sufficient to warrant the cost of administering a trust, you could leave the retirement benefits to the child in trust rather than outright. In that way, the assets will be better protected against the child’s potential creditors (including spouses), and will not be included in the child’s estate for estate tax purposes. In addition, the child need not gain control at age 18 or 21 or 25 (unless you or the trustee wants the child to gain control at that point).
Permalink Submitted by Gerald D on Fri, 2008-02-29 15:25
Thank you for the suggestion to create a beneficiary with another adult as custodian under the Gift to Minors Act.
I am confused as to how the money would be taxed, if at all, since the child would not be old enough to qualify for any type of IRA. Does this approach re-characterize the funds to non-IRA?
Also, it appears that there is no possibility to stretch these IRA’s and satisfy the desire to keep the funs in the child’s control, correct?
Permalink Submitted by Gerald D on Tue, 2010-01-12 18:37
Under the above divorced parent scenario that I described, would the following beneficiary statement for my minor child be appropriate:
My son, xyz (full name will be inserted), as the beneficiary under the Uniform Gift to Minors Act. The custodian shall be designated as either abc (full name will be inserted), my Father , def (full name will be inserted), my Mother, or mno (full name will be inserted), my sister, as they shall agree between them.
Permalink Submitted by Gerald D on Tue, 2010-01-12 18:40
I would like to repeat my question about what this UGMA account would be considered. If it started as an IRA or Roth would it continue as the same when my son inherits it? If it does, will he, or maybe more appropriately the custodian, still be able to stretch payouts over the life of my son for his remaining life expectancy?
Permalink Submitted by Al Fry on Fri, 2010-01-15 16:14
Here is how it would be worded in IN: “Kathy Klug, Custodian under the IN UGMA, FBO David Klug, Grandson”. I think it could also be reversed: “David Klug as Beneficiary under the IN UGMA; Kathy Klug, Custodian.” It would continue to be an IRA, and Kathy could do a stretch using David’s life expectancy. Scott Klug (David’s father) would have no access to the IRA. The RMDs could be put into another account for David’s benefit. As Bruce said, at age 18 (or 21 in some States) the IRA is fully under David’s control.
Permalink Submitted by Gerald D on Fri, 2010-01-15 20:11
Al, perfect! Thank you so much for your comments. 😀
Judger