How to Achieve Your Goals When Leaving an IRA to Heirs

10:45 pm Estate Planning, Tax Planning

ira e1346184593476 How to Achieve Your Goals When Leaving an IRA to HeirsA recent article by Deborah Jacobs reiterated the importance of checking IRA beneficiary designations, noting that the biggest – and costliest – mistake many people make is failing to designate the right people to inherit IRA assets.

Do not make the mistake of lumping your IRA assets into what you are bequeathing to heirs via your will.  IRA assets are passed through beneficiary designations forms.  If no form has been filled out, then your heirs are at the mercy of the IRA custodian’s policy.  Many times, the assets will go to the estate, which will negate important tax benefits.

January is the perfect time to review your IRA beneficiary designations and the best way to fill out your forms will depend on the goals you want to reach by bequeathing your IRA assets.  For example:

You want to provide for your spouse.  Name your spouse as the beneficiary, but name contingent beneficiaries as well in case your spouse predeceases you.

You want to maximize the stretch.  Name a younger heir as beneficiary, as inherited IRA distributions are calculated based on life expectancy.

You want to keep things even.  If you have more than one child and wish to leave equal portions of your IRA to those children and their heirs, then designate the portions as “per stirpes”.  This will ensure that if one of your children dies before you do, their share will go to their children.

You want to preserve assets.  Name a trust as the beneficiary.

You want to give your heirs options.  Name primary and alternate beneficiaries, so if one of your primary heirs wants to disclaim the inherited IRA for any reason, the assets can pass to the alternate(s).

You want to give to charity.   Name a charity as beneficiary to gain estate and income tax benefits.

If you need help reaching your estate planning goals in 2014, contact our Orange County law firm.

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