The IRA Inheritance Trust

Our Newest Breakthrough Strategy: For many of our clients, their IRA (or other company retirement plan that may someday be rolled over into an IRA) is their largest asset other than their home. Indeed, thanks to tax free compounding, an IRA tends to grow more rapidly over time than any other asset.

 

Have you ever considered how to best pass on your IRA to your children or grandchildren in a way that allows them to also defer taxes on the money after you die? With good planning, your retirement account can become a tax-favored retirement account for your loved ones after you die.

The long-term value of a properly planned IRA

 

If you have an IRA (or company retirement plan), you should know that, based on recent IRS regulations, you now have the ability to “stretch out” the income taxable minimum distributions over a much longer period – over your lifetime plus the lifetime of your children or your grandchildren. We have run the new “stretch-out” numbers for clients and the results are staggering!

 

For example, let’s say you have an IRA (or company plan) that grows to be $250,000 by the time of your death. Let’s assume that it will be inherited by your child at age 50 and continues to grow an average of 6% per year. We will also assume that your child withdraws the minimum distributions each year. Because of the stretch-out rules, When your child reaches age 80, he or she will have already received over $700,000 in distributions and still have about $300,000 remaining in the IRA to use or pass down to your grandchildren! In other words, with the stretch-out your IRA becomes much more of a family asset than you ever would have anticipated.

 

The challenges: Stretch-out and Protection

 

Unfortunately, this stretch-out of your IRA over several generations is not automatic. Your beneficiaries must make the right income tax elections and only take out the required minimum distributions (unless they need more for worthwhile purposes). Without proper planning and direction, your IRA account could be carelessly spent by your child or worse yet, his or her spouse may take a big chunk of it in a divorce. When your child passes away, your IRA could then pass to unintended beneficiaries, like the child’s spouse or some other third party rather than to your grandchildren. Plus, your IRA can be grabbed by the creditors of your beneficiaries, because of an accident, a lawsuit, a financial setback or bankruptcy. In short, when your IRA goes directly to your child (or other named beneficiaries) there is nothing to protect it from these lurking problems, and the money will be gone within a short time.

 

The solution: The IRA Inheritance Trust

 

Based upon recent IRS regulations and rulings, there is now a way to properly protect your IRA for generations to come – the IRA Inheritance Trust. Phelps Law and its team of experienced tax attorneys who understand the complex IRS distribution rules is uniquely equipped to offer this ground-breaking trust. This powerful, cutting-edge planning technique has received a favorable published ruling from the IRS.

How the trust works

 

Think of it as a revocable living trust designed specifically for your IRA. It is a revocable trust set up separately from your Living Trust. The IRA Inheritance Trust is then named the primary or secondary beneficiary of your IRA (or company retirement plan), but you remain the owner in full control during your lifetime. You can also make changes to the trust during your lifetime. When you pass away, your IRA distributions pour over into the IRA Inheritance Trust. The trust can then help assure the maximum tax “stretch-out” and better protect your spouse, children, and grandchildren from the influence and claims of spouses, caretakers, unwanted third parties, lawsuits and creditors!

 

If you have IRAs (plus company retirement plans) totaling over $150,000, you owe it to yourself and your loved ones to learn more about this new IRA Inheritance Trust and how it may eventually save and protect literally millions of dollars for your family – and preserve their future quality of life.

 

This is intended as a quick summary containing general information only and does not constitute legal advice. Before proceeding to set up an IRA Inheritance Trust, you should consult with a qualified attorney.