Inheriting Retirement Accounts

Transferring a retirement account to beneficiaries upon your death is complicated and if it is not done right can have adverse control and tax consequences.

For example, one issue most people do not consider is minor beneficiaries of retirement accounts. By law, if a child is a minor, the child cannot inherit assets of any kind until said child becomes an adult. If estate planning is not done, the state laws and the retirement agreement default policies will dictate how the minor child will receive the retirement account upon adulthood. The parents will lose the control of how the minor child receives retirement account funds.

Another example is whether or not the retirement agreement policies allow the retirement to pass to beneficiaries per stirpes (to the children of a specific deceased beneficiary) or per capita (to all the issue of one generation) if the estate becomes the beneficiary. If estate planning is not done, the retirement agreement default policies will apply, which might not agree with your planning preferences.

A final example deals with coordinating a retirement account with a trust (which usually gives a person the most control in how assets are distributed to individuals). In coordinating a retirement account with a trust, there are funding issues that can botch up a beneficiary's chance to roll over or stretch a retirement account if the funding is done wrong.

These are just a few examples of issues that effect the transfer of retirement accounts to beneficiaries. It is to a person's advantage to consider the complexities of retirement accounts with an expert estate planning attorney to ensure their retirement accounts get to their beneficiaries in the best possible way.

Here are a few Wall Street Journal articles regarding retirement accounts:
Trust as Beneficiary of IRA Is a Polular Strategy
What a Gift: How to Name a Minor Your IRA Beneficiary
Inherited IRAs: a Sweet Deal

Do Your Assets Match Your Estate Plan and How Healthy Are Your Assets?

We have found in reviewing many estate plans that a person's assets are not always coordinated with their estate plan thus undermining the plan and the effectiveness of the assets in fufilling the plan.

For example, parents might instruct their executor upon their deaths to set aside money for their children's educations. The parents' assets might consist mainly of retirement accounts. In following the estate plan, the executor would need to liquidate the retirement accounts to pay for the children's educations. In liquidating the retirement accounts, the parents' estate would be faced with paying potential penalties and forced taxes. Careful planning would enable the parents to fund educations while still preserving their retirement account tax status.

As another example, consider an individual who wants his estate to go to his children from his first marriage and still provide for his new spouse. When the assets are reviewed, the estate is real estate rich but cash poor. Without careful planning, the individual's executor might find it impossible to meet the needs of the surviving spouse while preserving the children's interests in the real estate.

We have also found in reviewing clients' assets that many clients' assets have become old and stale. For example, an insurance policy over five years old should be reviewed and possibly updated to take advantage of better premiums and better coverage. The same goes for investments. It is important to have your investments reviewed in order to ensure they are performing at their optimum capacity.

Here at Hughes Estate Group, we make sure our clients' assets match their estate plans. We also offer free evaluations to check the health of clients' assets. Getting estate planning documents in place is crucial. It is just as important to make sure your assets fit your plan and each asset is healthy to meet the needs of your plan.