Monthly Archives: February 2020

Protect IRA

Protecting a Vulnerable IRA Beneficiary

Most IRA owners want the person they’ve named as IRA beneficiary to delay the payment of income taxes for as long as possible. For a vulnerable IRA beneficiary, there is a secondary goal of passing the IRA account in a way that protects the income tax deferral, but also ensures the IRA itself will not be misspent.

If the individual you’ve named as beneficiary of your IRA would not have the ability to make good financial decisions because of dementia, other health issues, inexperience, or just a history of poor money management, leaving outright control of the IRA to that beneficiary does not make sense.

A spouse can treat an inherited IRA like their own retirement account, and roll it over into a new or existing IRA, or leave it as an inherited IRA. Either option allows continued income tax deferral. If the spouse didn’t follow the rules on a timely basis, the benefits of the income tax deferral would be in jeopardy.

The same tax concern applies to non-spouse beneficiaries who can elect to take required minimum distributions over their life expectancy.  Incapacity or poor decision making would put income tax deferral at risk.

For many retirees, their IRA is a significant part of their net worth. Why leave something you’ve worked a lifetime to accumulate to a beneficiary who would not understand the importance of income tax deferral, or be able to preserve and protect the IRA?

The way to protect the income tax deferral and protect the IRA itself is to name a qualified trust for the vulnerable beneficiary as the beneficiary of the IRA.  A trust that meets the requirements of a “designated beneficiary” receives the same income tax deferral as if the individual was named as beneficiary, and a trust provides protection against creditors and predators. The Trustee would make the decisions regarding income tax deferral and investment choices, and would distribute appropriate amounts for the beneficiary’s needs either to the beneficiary, or if the beneficiary would not be capable of paying bills, pay them directly from the trust.

Do you need to update your estate planning to protect your beneficiaries? Reach out to schedule an appointment with our expert Estate Planning Attorneys.  Call us at (770) 817-4999 or click here to send us a message.


The SECURE Act: How It Will Affect You and the Beneficiaries of Your Retirement Accounts

The SECURE Act, which was effective January 1, 2020, is the most impactful legislation affecting retirement accounts in decades.

The SECURE Act has some positive changes: it increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72, and it eliminates the age restriction for contributions to qualified retirement accounts.

The SECURE Act also has a very significant change that will impact your retirement account beneficiaries: it requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.

There are exceptions to the ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals.

Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy. Under the SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly causing your beneficiaries to be bumped into a higher income tax bracket, and receiving less from your estate than you may have originally anticipated. 

Your estate planning goals likely include more than just tax considerations. You might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and a divorcing spouse. In order to protect your hard-earned retirement account and the ones you love, a trust is a great tool to provide continued protection of a beneficiary’s inheritance.

Although this new law may be changing the way we think about retirement accounts, there are still some tools to minimize the impact of the accelerated income tax:

If you are charitably inclined, now may be the perfect time to review your planning and use your retirement account to fulfill these charitable desires, while providing a life time income to your beneficiaries through a Charitable Remainder Trust. 

In past years when many estates were impacted by federal estate tax, a common technique was to purchase life insurance through an irrevocable trust to fund the tax payment. This technique can now be used to replace the inheritance lost to income tax acceleration.

We will be holding a presentation in our office on the impact of the SECURE ACT for our Maintenance Plan clients.  If you would like information on joining our Maintenance Plan, please call our office at (770) 817-4999.

If you would like to schedule an appointment with one of our attorneys to review the impact of the SECURE Act on your beneficiaries, please call (770) 817-4999 to schedule that appointment.