IRAs aren't just retirementtools, they are also significant tools for estate planning. This is especiallytrue when it comes to Roth IRAs.
One specific application forRoth IRAs is in the context of inheritance planning for grandchildren. Unlikeâ€œregular IRAs,â€ there will be no future â€œincome taxationâ€ on withdrawals fromRoth IRAs. MarketWatch recentlyexplored this issue in a Q&A titled â€œHow to leave your Roth IRA to a minor.â€
Is it possible to leave a RothIRA to grandchildren for educational purposes or, failing that, to a trust fortheir benefit? The short answer: yes. The Roth IRA (or other IRA) can be leftas part of the inheritance simply by naming one or more individuals as thebeneficiary or beneficiaries under the plan. In addition, you can name a trustas a beneficiary, thereby allowing a single IRA to either work overtime for ahost of beneficiaries or to more carefully manage it.
Of course there is a long answerto this question, too. Naming a minor as a direct beneficiary to an accountwill require a legal guardian, which is a court-appointed role. Problem: thelegal guardian appointed may not be the person you would have selected.Moreover, the IRA will not be skirting the court system as you may haveintended by passing free of the courthouse.
Arguably, naming the trust asbeneficiary does require the expense and thoughtfulness of establishing atrust, but the benefits typically far exceed getting caught in the legal redtape of the probate court.
Essentially, IRAs are uniqueassets and giving to minors always involves a bit of a challenge in and ofitself. However, since IRAs are some of the most commonly owned assets, itmakes good sense to plan for their efficient administration after you are gone.
So, how does your Roth IRA (orother IRA) currently fit into your estate plan? For more information on this and otherestate planning subjects, contact IdahoEstate Planning and schedule aconsultation. Remember,good planning is no accident.