[vc_row][vc_column width=”1/1″][vc_column_text]Some of the greatest wealth-building vehicles are IRAs, 401(k) and similar plans. A key estate planning opportunity is to determine how best to “stretch,” and thus maximize, the value and benefits of these tax-deferred accounts.

The ability to take minimum required distributions over a beneficiary’s lifetime is what creates a “stretch” opportunity. Stretching out the benefits means deferring more in taxes. The longer the stretch, the longer the deferral. Also, assets in an IRA are protected from claims of creditors of the person setting up and contributing to the account, as well as from the claims of a beneficiary’s creditors. So, the longer you can stretch the payout and keep more in the IRA, the longer you keep assets protected.

With an IRA, deferring the realization of a beneficiary’s income as long as possible may be as simple as naming your spouse as the beneficiary, with your adult children as secondary beneficiaries. A spouse is entitled to a 100% rollover. This allows a spouse to continue to defer recognizing income from the IRA until he or she reaches age 70 ½, at which point his/her remaining life expectancy will determine the required minimum distributions (RMDs). If there is no surviving spouse, the adult children will have the opportunity to withdraw from the account over their life expectancy.[/vc_column_text][divider line_type=”No Line” custom_height=”15″][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][vc_text_separator title=”IRA Trust Protections” title_align=”separator_align_left”][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][vc_column_text]If you want to protect or control the distributions of IRA funds to a child, consider creating an IRA trust. An IRA trust is designed specifically to serve as a beneficiary of an IRA or other qualified plan account. It also allows the account distributions to “stretch” over the life expectancy of the beneficiary.

Without an IRA trust, naming a minor child or a grandchild as a direct beneficiary on your IRA may give the minor too much control and access too soon. If you name a grandchild as a direct beneficiary of your IRA, he or she can take advantage of the “stretch” aspect of an IRA, and no trust is required for him or her to do so. But there is nothing that will keep the grandchild from pulling out the entire IRA account once he reaches age 18. An IRA trust can protect against this situation.

Individuals who have grandchildren may set up IRA trusts for them so as to use the grandchildren’s young age as the determining factor for the RMDs. If you want to maximize the “stretch” (i.e., deferral), then you’ll want to name grandchildren as beneficiaries, not your children, and you will also want to establish separate trusts for each child or grandchild. This allows for the maximization of the stretch when there are multiple children and grandchildren at varying ages. For example, if you combine an adult son and his two minor children in an IRA trust, the measuring life for the RMDs becomes the oldest beneficiary — the adult son. The ages of the minor grandchildren do not impact calculation of the RMDs. Deferral of the IRA is minimized as a result of combining younger and older beneficiaries in one trust. If each beneficiary has a separate trust, each beneficiary’s life expectancy is the determining factor for the RMDs’ calculation as to his or her particular trust.[/vc_column_text][/vc_column][/vc_row]