A “stretch-IRA” can be a great benefit for your kids. The goal of course is to ensure that they can take advantage of tax deferral. Sounds great right? So, what is the problem?
First Problem – Without proper estate planning, the kid(s) may take the inherited IRA in a lump sum, and the tax advantages of “stretch-out” will be lost.
Second Problem – Without proper estate planning the inherited IRA may be subject to the children’s creditors, lawsuits, etc.
So what is the solution?
Consider discussing an IRA Trust with your Estate Planning Attorney and Financial Advisor. Generally, these trusts can help ensure that your kids take advantage of the tax benefits, and don’t allow distributions for anything other than: 1) the required minimum distributions per the Tax Law; and 2) circumstances that you determine and have your attorney draft into the Trust (e.g. educational or medical needs).
IRA Trusts can be a very powerful tool in your estate plan. That being said, these types of trusts must be drafted and administered in strict compliance with applicable tax and trust Laws, and the use of a trust should be evaluated with your estate planning attorney before you make the decision to set one up.
Click here for my firm’s contact information if you need to reach out to us.