Wednesday, June 15, 2011

Estate Planning with IRAs and Qualified Plans

As of December 31, 2010, individuals hold nearly $17.5 trillion in IRAs and qualified plans.  These assets now account for 37% of all household financial assets.  Because of the way lifetime required minimum distributions are now calculated, retirement plans will frequently be the largest asset held at death. 

IRAs and qualified plans were designed to accumulate wealth for retirement, not accumulate wealth for future generations and the tax laws were designed accordingly.  As a result, retirement accounts may present the greatest challenge when it comes to funding a Trust.  Even the best designed estate plan will fail unless assets are properly titled and beneficiary designation forms are properly completed.

With a properly drafted Trust and a properly completed beneficiary designation form you can leave a $100,000 IRA to a 25 year old beneficiary that will provide the beneficiary with $400,000 of after tax income over his life expectancy with all the benefits normally associated with leaving property to a beneficiary in Trust.  Compare this with the $60,000 the beneficiary would receive if left to a Trust that, because of the way the Trust was drafted or the way the beneficiary designation was made, does not qualify for look-through status.

Jason Salinardi

BridgeBuilder

With a two-year old at home, I had to include this thought for the week.

Thought for the Week

"A two-year old is kind of like a blender, but you don't have a top for it."

~Jerry Seinfeld