Flexibility in an Uncertain Estate Planning World: IRAs and Trusts

Friday, August 10, 2012

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

We are in a now all too familiar position. We don’t know what the estate tax rules will be in 2013. The exemption amount is scheduled to drop back to $1,000,000 per person, and it will not be portable. We have no idea what Congress may or may not do about the situation. And, because 2012 is an election year, they may not do anything until late in 2013 or perhaps early in 2014. Do you need a trust to protect your estate tax exemption, or don’t you? Should you name a trust as the beneficiary of your IRA, or not?

My crystal ball is not working. Is yours?
 

One way to gain some flexibility is to name both a primary beneficiary and a contingent beneficiary for your IRAs and other retirement accounts. This way, at the death of the IRA owner, the beneficiary can disclaim the IRA and it will pass to the contingent beneficiary. One beneficiary can be the spouse and the other can be the trust. The beneficiary has nine months from the date of death to assess the current estate tax rules and determine which beneficiary will get the most advantages from the inherited IRA. You can look at the income needs of the spouse, sources of income, the estate tax implications of the spouse inheriting the IRA, the income tax implications of required distributions, and how the stretch will work for the beneficiaries involved. Then you can make an informed decision and get the best deal available for the beneficiary.

The spouse can be the primary beneficiary with the trust as contingent, in which case when the spouse disclaims the IRA, the IRA passes to the trust beneficiary. Or, the trust can be the beneficiary with the spouse as contingent. Then if the trust disclaims, the IRA will pass to the spouse.

IRAs, trusts, and disclaimers are complicated estate planning topics. Be sure to consult with knowledgeable advisors before naming a trust as your IRA beneficiary and be sure the beneficiary consults with an attorney before doing a disclaimer. You can find the names of Ed Slott-trained advisors on our website, www.irahelp.com.

 

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 

Post Views: 3
Posted in: , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.