Minimizing IRA Taxes and Avoiding Creditors
Continuing the Benefits of an IRA for Your Heirs
An individual retirement account (IRA) is an important part of most retirement portfolios. If you have contributed the annual maximum over your adult life, you've probably grown a nice nest egg for your golden years.
When you die, however, that nest egg breaks open and passes to your listed beneficiaries. Two most common scenarios: (a) the kids spend it freely and get stuck with a huge tax bill or (b) creditors descend on the unprotected money.
The Livens Law Firm can help you establish an IRA inheritance trust to protect those assets from claims and protect your heirs from themselves. Our Bedford, Texas, law practice offers comprehensive estate planning solutions to clients across the Dallas-Fort Worth area and statewide. Call (800) 569-2663 for a free consultation.
The IRA Inheritance Trust
Upon your death, the assets contained in your IRA can now be protected from your beneficiaries' creditors, and the annual distributions may be distributed over your beneficiaries' lifetime. Thus, what starts as a $200,000 IRA can now, for example, become literally worth millions.
Non-spouse beneficiaries (i.e., children) generally withdraw the entire amount of the IRA upon your death. The benefit of the IRA trust is that the children will have creditor protection for the IRA and they have the option of withdrawing the annual distributions over their lifetime. A further benefit is that you can require the children to take distributions over their lifetime. The principal continues to grow and provides a predictable income stream over their lifetime, and only the annual distributions are taxed. If you have faith in your child's fiscal restraint and financial sense, we can also establish the IRA inheritance trust as a beneficiary-controlled trust.
Example: Say that Joe's daughter inherits his $200,000 IRA. Whether she spends it or reinvests, there will be a big tax bill the following year. With an IRA inheritance trust, the money stays put the government, creditors and the beneficiaries themselves can't get at it. Assuming an 8 percent annual return, Joe's daughter would take out some $700,000 in minimum distributions if she lived another 30 years and still leave $300,000 to Joe's grandchildren when she dies!
Our experienced professionals can also explain strategies for a 401(k) beneficiary and other qualified retirement plans.
Proven Strategy Endorsed by the IRS
Attorney Stephen J. Livens has practiced in estate planning law for over 20 years and has been a CPA in Texas for 25 years. His combined experience in trust planning and tax law makes it unnecessary to consult a separate tax accountant or financial advisor. Mr. Livens is a member of Wealth Counsel, an organization of estate planning professionals that received a private letter ruling from the IRS in 2005 validating the IRA inheritance trust as a lawful method for stretching out the annual distributions over the child's life expectancy versus the future deceased parent's much shorter life expectancy.
For a plain English explanation of your specific scenario, contact us today for a free consultation.