Berman & Asbel, LLP

Considerations for IRAs and estate planning

Those who seek a legal professional's assistance with will preparation and estate planning in Pennsylvania may feel ready for the future, but in some cases, these planners may fail to consider the different strategies that might maximize an individual retirement account's payouts. Without clear beneficiary designations, the issues of who gets these assets and how quickly the funds must be withdrawn are out of a beneficiary's control.

An IRA with no beneficiary or a named beneficiary who is deceased goes into the account owner's estate, and having the IRA included in the estate can negatively impact its value. A human designee can typically choose to withdraw only the required minimum distribution each year to stretch out the payments over the longest amount of time allowed. This also allows the IRA to grow income tax deferred or tax free, depending on the type of IRA. The RMD is based on life expectancy, but since estates have no life expectancy, the RMD does not apply, and the lump sum of the IRA is dumped into the estate.

Unlike a human designee, the estate receives no protection from the decedent's creditors, allowing the assets in the IRA to be used by creditors to pay off debt. Additionally, these funds are subject to income tax, and the estate is stuck with the income tax bill. To avoid this, an IRA account holder should name a beneficiary and an alternate beneficiary in case of the primary dies. In addition, it can be beneficial to review the beneficiary forms at least once a year.

In the case of estate planning, a person may benefit from the professional assistance offered by an attorney. An attorney who is familiar with estate tax planning experience could be invaluable for the future of one's family.

Source: Forbes, "When Bad Things Happen To Good People With IRAs", Deborah L. Jacobs, September 03, 2014

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