Legal Advice

NON-STRESS IRA DESIGNATION

For 401ks, IRAs and other qualified retirement accounts, the designated beneficiary form directs how the funds will be paid on your death.

Common problems that arise with beneficiary designations are: a. The “Estate” or no beneficiary is listed, so a probate is needed and the IRA will lose the ability to be stretched beyond 5 years, increasing the income tax. b. A beneficiary dies before you, and if the trust was not the IRA’s designee, then the financial company rules apply to who gets the deceased beneficiary’s share. c. The designated beneficiary is a minor, not a trust for the minor, and so a costly court conservatorship is need and much of the deferred tax benefit is lost. d. Your spouse, who is not your children’s parent, did not sign a spousal waiver, so your spouse is entitled to at least if not all of funds, not your children.

Remember, currently, an inherited IRA must be paid in 10 years, if the beneficiary is not a spouse. Leaving a portion or all of your qualified retirement account to charity makes sense. The charity does not pay income taxes and will receive more funds than a family member. Other assets which are not taxable then can be left to family or friends.

Sharon Ravenscroft, Esq., The Cavanagh Law Firm, PA, Sun City and Phoenix offices, (623) 815-7451 or Sravenscroft@CavanaghLaw.com. Sharon’s practice focuses on Wills, trusts, probate and trust administration. For more information visit www.sharonravenscroft.com.

928-830-6329