How to Turn Your IRA Into a Massive Benefit For Your Family

How to Turn Your IRA Into a Massive Benefit For Your FamilyPresented by Gregory Herman-Giddens, JD, LLM, TEP, CFP919.493.6351 | [email protected]

ESTATESAs se t sWealthP R O B AT Et a x e s

About Me• Board Certified Specialist in

Estate Planning and Probate Law (NC)• 28 Years Experience• Trust Creation• Trust Administration with IRAs• Estate Administration with IRAs• Practice in NC, FL, TN & NY• Teach Continuing Legal Education on

IRA RMD rules and Trusts

Ideal Estate Plan• AVOID Estate Taxes• AVOID Income Taxes• AVOID Dissipation of Assets from

Irresponsible Spending• AVOID Attack from Creditors, Predators,

& Divorce• AVOID Court Control (Probate or

Guardianship) as Much as Possible• AVOID assets going to non-relatives

(Bloodline protection)

Is there a way I can avoid taking my Required Minimum Distributions (RMDs)?COMMON QUESTION! ….. NO……At least for “traditional” retirement plans, but Roth IRAs and 401(k)s do not have RMDs during the life of the original account owner.Why are RMDs necessary?• IRS wants to collect taxes as soon as possible• Retirement plans are not designed as perpetual tax-free

zone• Retirement plans have an end point measured by the life

expectancy of the participant/beneficiary

Who Should the IRA Beneficiary Be?

Options for Distribution of IRA to Family• Not having the proper beneficiary named is one of the biggest

mistakes people make with retirement plans• Your trust or will do not automatically control who gets the

account, so you must name a beneficiary with the retirement account company

• Outright to Surviving Spouse• In Trust for Surviving Spouse• Outright to Children or Grandchildren• In Trust to Children or Grandchildren• Failing to name a beneficiary or naming estate = big mistake!

Why You Should Consider a Trust• INHERITED IRAs ARE NOT ASSET PROTECTED*• In a 2014 case (Clark v. Rameker), the U.S. Supreme

Court holds 9-0 that IRAs are not ASSET PROTECTED retirement plans for non-spousal beneficiaries• Court’s logic could apply to spousal beneficiaries as well,

depending on the facts* Unless protected by state law (only for beneficiaries residing in NC, FL and 6 other states)

Why Leave My IRA to a 7-Year-Old?• More years of tax-free growth• Younger people = longer life expectancy• Longer life expectancy = lower RMDs• Lower RMDs = More time for compounded tax-free growth• Younger people generally are in lower tax brackets• Lower payment at lower brackets = TAX SAVINGS• Control is ensured. Parent/Grandparent/Spouse can be

‘in charge’ of trust beneficiaries.

Beneficiary Scenario - RMDs

Beneficiary Scenario – Account Balance

Why Use a Trust?Protection against irresponsible spendingProtection from creditors, bankruptcy courts, and

judgmentsProtection against divorce courtsProtection against guardianship court controlKeep in the familyFlexible “post-mortem planning” opportunities that are

not readily available with traditional beneficiary form planning

What Kind of Solution Do I Need?• None – not right for everyone• Retirement Trust• Education Trust• Grandchildren’s Trust• Partial Roth IRA Conversion

Married IRA Owner• Primary Beneficiary is Spouse• Risk: Unintended Beneficiaries• Spouse can roll over to own IRA and name new beneficiaries

(remarriage, spouse’s children, pool boy or secretary, nursing home romance)

Unmarried IRA Owner• Primary Beneficiary - Children• Risk: Loss of Inheritance• IRA may not have asset protection and can be tapped by creditors

of children and divorcing spouses• Risk: Immediate Income Taxation• Children may request the entire IRA amount be distributed

immediately.

Comprehensive Estate Planning• I want to....

• Protect myself and my family• Pass my assets the way I want • Create a lasting legacy

When Your Estate Planning Goals

are Integrated with Your IRA and Retirement Beneficiary Planning:

IRA Legacy Trust

IRA Legacy Trust• Special Purpose Living Trust• Separate from original Living Trust• Named as beneficiary of retirement plan benefit• Trust must qualify as a “Designated Beneficiary” of Inherited IRA• Spouse or children/grandchildren can be beneficiaries of the trust

(not the IRA!)

IRA Legacy Trust: Two Types• Conduit• RMD has to be taken each year• RMD has to be paid out to

beneficiary each year• Advantage: RMD taxed to

Beneficiary • Advantage: IRA is stretched out

for maximum tax savings • Disadvantage: Distributions have

no asset protection for beneficiary

• Disadvantage: Possibly “On the table” for transfer in beneficiary’s divorce

• Accummulation• Required minimum distribution

has to be taken each year• Then Trustee decides what to

distribute• Advantage: Asset protection for

beneficiary• Advantage: “Off the table” in

beneficiary’s divorce• Disadvantage: RMD taxed at

trust rate if not distributed• Compressed income tax rates

IRA Legacy Trust: Choosing the TrusteeOptions include:

• Beneficiary• Family member• Friend• Professional Trustee

Every case and every family is different, but it is often best to give serious consideration to using a professional trustee as trustee of the IRA Legacy Trust.

Comprehensive Estate Planning: Timing is Critical• Make plans before you need it• You don’t know when you will need it• What opportunities are you missing by doing nothing?• The State has written an estate plan for you

Questions?

Circular 230 Dislcosure: Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party.

For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors.

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