Paul L. Caron

Saturday, November 19, 2016

NY Times:  How To Give An IRA To Children Without Giving Up Control

New York Times: How to Give an I.R.A. to Children Without Giving Up Control, by Paul Sullivan:

Most people spend whatever they have saved in their individual retirement accounts in the years after they stop working. If they’re fortunate, they have enough to last.

But the few who have amassed such large retirement accounts that they will never exhaust them have a concern common to many wealthy parents: What happens to the money when they die and their children inherit it?

A trusteed I.R.A. is a relatively easy way for parents to control how, when and why their children receive the distributions from their retirement accounts.

It can accomplish many of the same things as a trust with less work and lower cost. It also makes it simple to extend the distributions to heirs based on their individual life expectancies. ...

With a traditional I.R.A., the assets can be directed through beneficiary designation forms, which will split the funds among the heirs. But those forms don’t give the I.R.A.’s owner control over how someone uses the money.

A trusteed I.R.A. allows the assets to be divided into separate accounts — as opposed to going to separate individuals. And each account can have different guidelines on when and for what distributions are made.

“It’s that spot where retirement planning meets estate planning,” said Steven D. Brett, president of Marcum Financial Services. “You get to combine the tax advantages of an I.R.A. with the benefits of a trust.”

A trusteed I.R.A. also offers asset protection. Edwin Morrow, national wealth specialist at Key Private Bank, noted that the Supreme Court, in a 2014 decision, Clark v. Rameker, ruled unanimously that funds held in traditional I.R.A.s that are inherited do not have the same protection as retirement assets. That ruling, Mr. Morrow said, increased interest in trusteed I.R.A.s as a way for people to protect their assets when their children inherit them, and to dictate how distributions above the minimum are made. ...

[T]rusteed I.R.A.s have their limits.

For one, they are expensive compared with a traditional I.R.A. that owns passively managed investments. And someone with a smaller I.R.A. may not have enough assets to justify the management fees — if a provider would even agree to manage it.

Typically, the half dozen or so providers of trusteed I.R.A.s set up and manage the accounts for the same 1 to 2 percent fee they charge to manage the assets. But given that fee, advisers say trusteed I.R.A.s typically work best for retirement accounts of $500,000, if not $1 million. ...

People who are leaving their I.R.As to their spouses — or simply don’t care how their money is spent after they’re gone — probably have no use for a trusteed I.R.A. They could save themselves time and money by using simple beneficiary designation forms to determine who gets what.

But for a subset of affluent investors, a trusteed I.R.A. could accomplish many goals without the time and expense required to draft a trust.

Tax | Permalink


I feel like Harry Truman. On one hand, the NYT always calls for confiscatory death taxes; then on the other hand, it prints articles on how to beat the rap.

Posted by: Dale Spradling | Nov 19, 2016 8:35:24 AM

wow, they're 85 and they're still worried about how their 60+ year-old "children" are going to spend inherited $? at some point you have to give up control and let your kids be kids.

Posted by: Mark Scott | Nov 19, 2016 7:25:25 AM