Using Your IRA as Part of Your Wealth Transfer Legacy

I’d like to thank Michael J. Garry, CFP®, JD/MBA for today’s post about Using Your IRA as Part of Your Wealth Transfer Legacy. Michael is a Certified Financial Planner practitioner (CFP®) and financial advisor in Newtown, PA. His firm, Yardley Wealth Management, LLC, performs comprehensive financial planning and in-house investment management.  I highly recommend if you’re in that area you reach out to Michael for further financial tips and help!

One way of extending the life of your wealth through generations is by implementing a stretch IRA strategy. By designating the beneficiaries with the longest life expectancy the IRS will have lower imposed required minimum distributions for the inherited IRA. The asset base that is left is larger which will help it grow more quickly.

Factors to Consider

It is important to take into account important factors before making this type of decision:

  • If you need to withdraw more than the RMD amount, review how much the projected remainder of your IRA will be in the future.
  • If you are married, and wish to implement this strategy, but list your spouse as the primary beneficiary and then, those in later generations as secondary beneficiaries.

When making the choice to implement this strategy, you name one or more individuals with the longest life expectancy as beneficiaries. Ideally, you would take only the required minimum distributions during your lifetime. This will leave the largest remainder possible to grow tax-deferred while you’re still alive.

Distribution Options for Beneficiaries

Depending on whether your beneficiaries are spousal or non-spousal and whether or not you had begun taking RMDs, beneficiaries will have several options for distribution from their inherited IRA.

They may include:

  • Taking a lump sum.
  • Transferring the account balance to an inherited IRA with a five-year time limit to start distributions.
  • Transferring the account balance to an inherited IRA that will distribute assets according to the beneficiary’s life expectancy.

Spousal beneficiaries have the additional option of requesting a spousal transfer, which allows them to roll over the account balance into an IRA in his or her own name.

The Benefit of a Roth IRA

Roth IRA contributions are not tax-deductible, your investments grow tax-free, earnings can be withdrawn income-tax-free if you’re at least 59½ and have had the Roth at least five years, and there are no RMDs at age 70½.

Spouses essentially are able to treat the Roth IRA as if they were the original owner because they not only do not have to pay taxes on it, but they are not required to take distributions either.

Change is possible

As with any estate-planning technique, your plans may evolve over time. All IRAs give you the flexibility to begin taking penalty-free distributions as early as age 59½. In addition, you can change the beneficiary at any time should your beneficiary’s needs change.

If your ultimate goal is preserving wealth for future generations, a stretch IRA strategy will generally allow you to grow your assets for a longer period of time and allow them to continue to grow after you pass.


The Seven Benefits Of A Corporate Trustee

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If you have a trust, you likely have named yourself as the current trustee and your spouse or partner as the co-trustee. If you were to become incapacitated or die, your spouse or significant other would then serve as your successor trustee. But what do you do in the case where you or your successor trustee are not comfortable or capable serving in that role? An alternative is to name a corporate trustee. A corporate trustee is simply a trustee that is a professional institution/corporation instead of an individual.

The following are the key benefits of naming a corporate trustee to serve as the acting trustee, the co-trustee or the successor trustee of your trust:

1. Experience

The trustee of a trust is responsible for administering the trust account, ensuring the safekeeping of any assets in the trust, record keeping, accounting, monitoring and initiating distributions as outlined in the trust, coordinating and preparing tax documents, monitoring the investment manager of the trust assets and paying bills. A corporate trustee performs all of these tasks on an ongoing daily basis for perhaps hundreds to thousands of different trusts. Thus they have the capability, know-how, professionalism and process in place to handle these tasks if you or your proposed individual trustee does not have that same comfort or experience level.

2. Objective

A corporate trustee will follow the trust instructions exactly as they are described within the trust. This is part of their fiduciary responsibility to the grantors and beneficiaries of the trust. This avoids potential conflicts of interest between family members. I have seen numerous occasions when family all seem to get along until you put monetary assets in front of them. Some family members feel more favored then others and sometimes decisions are not always made that are in the best interest of the person they should be financially providing for.

3. Fiduciary Responsibility

Similar to a NAPFA Registered Financial Advisor, a corporate trustee has a fiduciary responsibility to any grantors (you, spouse or partner) and any beneficiaries of the trust. This means they must put your interests before their own. It is the highest level of trust, loyalty and care available in the financial industry.

4. Perpetual Life

A corporate trustee is typically a corporation with an ongoing time horizon. It will not become sick, incapacitated, or pass away while serving as your trustee.

5. Flexibility in Role

You can outline in your trust the exact role you would like the corporate trustee to fulfill. A corporate trustee can serve as the acting trustee, a co-trustee or the successor trustee.

6. Peace of Mind

Relieving your family and friends of the trustee burden will not only provide peace of mind to them, but also to you.   Knowing that your financial affairs are being handled in the most efficient and prudent manner with a professional team of administrators and advisors is many times well worth the cost of the service.

7. Coordinate With Your Financial Advisor

There are generally two types of corporate trustees: 1) those that serve solely in the administrative trustee role and 2) those that additionally manage the trust assets. If your financial advisor has a comprehensive understanding of your financial situation and they are already managing your portfolio, then you may want to consider hiring a corporate trustee that serves solely in the administrative role.   If you are working with a financial advisor affiliated with NAPFA, then the benefit to you is that you potentially would have two fiduciaries working as a team on your behalf, your investment strategy would not need to change and your accounts would not need to transfer when a trustee change is ready to be made.

How Do I Find A Corporate Trustee?

Your financial advisor and/or estate planning attorney are typically a good referral source for locating a qualified corporate trustee. Many financial advisors provide ongoing comprehensive financial planning, including advice regarding estate planning, and thus have a network of qualified referral sources to meet your specific needs.