IRA money in your will

[audreyh1]

Where we live, even real estate can be designated TOD. I think cars can as well, but we have not looked into that.

Not in my DF’s state.

If you have a trust set up (revocable living trust) you put the house as owned by your trust. Then it bypasses probate when you die. Trust executor can sell it and distribute per the will guidance.

Probate was easy. Disposing of the real estate has been the royal pain.

 

[Gill]

Be careful. When you make bequests in your will it has no effect on your IRA. Your IRA is disposed of by beneficiary designations. If you make bequests in your will and there are no funds to pay them the bequests will lapse.
Gill

 

[audreyh1]

If you have no beneficiaries listed on the IRA then it reverts to the estate to be handled as specified in the will.

 

[Gill]

If you have no beneficiaries listed on the IRA then it reverts to the estate to be handled as specified in the will.

Assuming that is the provision in the IRA. Such a disposition can be very undesirable from a tax standpoint because the entire distribution will be taxed to the estate.
Gill

 

[OldShooter]

Be careful. When you make bequests in your will it has no effect on your IRA. Your IRA is disposed of by beneficiary designations. If you make bequests in your will and there are no funds to pay them the bequests will lapse.
Gill

Assuming that is the provision in the IRA. Such a disposition can be very undesirable from a tax standpoint because the entire distribution will be taxed to the estate.
Gill

It's really more complicated than this. That's why home-made estate plans are a bad idea. Any problems aren't apparent until you're dead and at that point they must either be suffered with or fixed in court.

 

[Gill]

It's really more complicated than this. That's why home-made estate plans are a bad idea. Any problems aren't apparent until you're dead and at that point they must either be suffered with or fixed in court.

Please explain how "it's more complicated than this". I thought I pointed out the pitfalls of such an arrangement.
Gill

 

[OldShooter]

Please explain how "it's more complicated than this". I thought I pointed out the pitfalls of such an arrangement.
Gill

Your estate planner can explain it if you like, as ours did for us. Not interested in an amateur intra-SGOTI lawyering debate. My point in posting was just to warn the OP.

 

[harllee]

We just went through this. We have IRAs at Vanguard and we did beneficiaries for those--primary to each spouse and secondary to listed beneficiaries. Then in our will we have some specific bequests and the residuary estate goes to each spouse with secondary beneficiaries being identical to those of the IRA. Vanguard makes it easy to do IRA beneficiaries online.

 

[Gill]

Your estate planner can explain it if you like, as ours did for us. Not interested in an amateur intra-SGOTI lawyering debate. My point in posting was just to warn the OP.

I am an "estate planner" (a trusts and estates attorney) and was just wondering your thoughts on this.
Gill

 

[rksparks]

Absolutely best to designate beneficiaries for IRAs—that way it avoids probate. For example, our IRA is set to first go to me if my wife dies and to her if I die. But it's set if we both die to go to our (combined) 4 siblings equally (i.e. 25% to each). This is easy to do through whichever company holds your IRA (in my case, Fidelity). If you have an IRA split up in different accounts, you'd simply figure out the numbers as you wish and designate beneficiaries accordingly.


There are some tax consequences for your beneficiaries (other than your spouse), so we let them know what we've done—any could have opted out if they wished.

 

[KarenF]

IMO, it is better to designate beneficiaries to your IRA. That way there is no chance it will go through probate.

Yes - this is the best way! I have my husband as beneficiary, and my kids 50% each as secondary beneficiaries.

 

[KarenF]

Your estate planner can explain it if you like, as ours did for us. Not interested in an amateur intra-SGOTI lawyering debate. My point in posting was just to warn the OP.

I had to google SGOTI

 

[yclipse]

Your will and your executor have NO ROLE to play on the IRA if beneficiaries are properly designated. If they are not, the funds in the IRA are payable to the estate and the entire amount has to be distributed within five years of your death rather than the 10 years that would apply to non-spouse DBs. This is usually a very undesirable outcome for all but small IRAs. Taxes are accelerated and in some cases may be payable at trust rates, and the estate has to be left open for up to five years.

 

[albundyz]

I have only read a few responses....and this may seem obvious to most, but it s/b mentioned.... You can't step outside your house and yell out (declare) your beneficiaries. Usually, the beneficiary designation is within your IRA account. In my case, my IRA is with Vanguard and within my Vanguard account I have beneficiary options. I stated my beneficiaries there.

I only state this cuz some may not connect to "where" you declare you beneficiaries.

 

[MuirWannabe]

I just want to confirm my understanding. In our case, we have a trust in place in our will. The trust applies to one of children who has a substance abuse problem. Inheriting his money outright would not be wise. My other two children do inherit their money outright without a trust.

Trying to reflect that in a IRA beneficiary designation is not possible. IRA beneficiary designations are for more basic scenarios only. Because of this, we have declined to name secondary beneficiaries on our IRA accounts since we want the trust in the will to be in effect for the IRA money as well.

Is this thinking correct?

 

[Scratchy]

Trying to reflect that in a IRA beneficiary designation is not possible. IRA beneficiary designations are for more basic scenarios only. Because of this, we have declined to name secondary beneficiaries on our IRA accounts

For us too, the standard IRA beneficiary designation form was not adequate to denote our wishes, which involve the IRA going to a Trust under certain conditions. Our attorney constructed a "rider" to the IRA beneficiary form which was accepted by the custodian. So it may be possible for you to effect a more complex beneficiary scheme, potentially including a Trust, with a similar "rider". Of course, this should be done only with the advice of an attorney. The "rider" we filed was not something I could have composed myself.

we want the trust in the will to be in effect for the IRA money as well.

Leaving an IRA to a Trust requires the advice of a Trust and Estates attorney competent in this area, and and not all are. Some of the issues:

-If the Trust is not drafted properly, the IRA may have to be distributed into the Trust in five years instead of ten. To be clear, this does not mean it necessarily has to be distributed to the beneficiary from the Trust, that depends on the terms of the Trust, but it may have to be distributed from the IRA to the Trust which has tax implications.
-It sounds like you intend this be an Accumulation Trust. Since the SECURE Act requires distribution of the IRA in ten years for a non eligible designated beneficiary, to the extent you accumulate income and distributions in the Trust without passing them through to the beneficiary, they will be taxed at accelerated rates compared with individual tax brackets. It can be a trade off between protecting the funds from misuse by the beneficiary and increased taxation. Just something to be aware of and have considered, especially post SECURE Act.

Here is an excellent though somewhat dense article from Michael Kitces which discusses leaving IRA's to Trusts:

https://www.kitces.com/blog/discret...re-act-designated-beneficiary-mbt-guidelines/