Leaving RIRAs to the children
I was under the impression that the best way to leave your RIRAs to your children was to make them your primary bene. But doing that will make them take RMDs earlier than if you left the RIRAs to the mother. The mother, being the bene,(also the wife) would not have to take RMDs. Then when she dies she leaves the ROTHs to the children. That way it stretches the ROTHs farther for the children. Is that corect?
Permalink Submitted by tomd37 on Sat, 2010-08-14 16:21
I suspect Alan-oniras will reply here, but I am wondering how the ages of the children will come into play when they inherit the Roth IRA from the father or the mother. If the children are the designated beneficiaries when the father passes (assuming he passes first) then they have to start RMDs the year following his death based on their attained age that year. That factor will be lower and that factor is reduced by one each succeeding year.
If the children are designated beneficiaries when the mother passes (some years later) then they have to start RMDs the year following her death based on their attained age that year. That factor is reduced by one each succeeding year. However, that initial factor will be higher and therefore the RMDs will be greater and may not allow the growth in the Roth IRA because of the higher factor.
Who knows how long the mother might live after the father passes, who knows with the growth rate might be after the father passes, etc.?
Just something to think about and possibly Alan will make other appropriate comments.
Tom D.
Permalink Submitted by Al Fry on Sun, 2010-08-15 03:10
One possibility is to make the wife primary and children contingent. Then at his death, the wife can decide to take or disclaim all or none. If children are minors it might be good to use the State’s UTMA in the contingent arrangement.
Permalink Submitted by Alan Spross on Sun, 2010-08-15 03:20
You are correct Scooper that the scenario you decsribe will produce the longest potential stretch because no RMDs will be required at all until the last parent passes.
Of course maxing the stretch is a plus, but there are other potential factors that might affect your choice of beneficiary such as concern that the children will never see any proceeds for some combination of reasons. On the other hand if the children inherit after the age of majority they will have full control of the account and could drain it for short sighted reasons. To prevent that, their funds would have to be left to a trust that specifies distribution requirements or have the trustee able to make decisions on distributions based on circumstances.
Permalink Submitted by Bruce Steiner on Sun, 2010-08-15 13:07
As Alan and Scooper pointed out, you can get a greater stretchout by leaving the Roth IRA to the spouse, who can then leave it to the children. The spouse can improve on that by leaving to the children in separate trusts for their benefit rather than outright. Depending on how long the spouse survives, if by the time of the spouse’s death it appears that a child won’t need his/her share, the spouse can leave that child’s share to or in trust for that child’s children, or the child can disclaim his/her share, thus getting a greater stretchout.
The tradeoff, though, is that by leaving the IRA to the spouse you’re giving up the opportunity to use it toward the IRA owner’s estate tax exempt amount (if the IRA owner doesn’t have enough other assets to fully utilize his/her estate tax exempt amount). As Al pointed out, the IRA owner can name the spouse as primary beneficiary, and the children (or trusts for their benefit), or the credit shelter trust, or first the credit shelter trust and then the children or trusts for their benefit, as contingent beneficiaries.
This is something that an IRA owner may wish to discuss with the attorney handling his/her estate planning.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL