We have all heard of the result of studies of how fast the average beneficiary goes through inherited money. Spending “found” money simply does not carry the “feel” as spending one’s own hard earned cash. An IRA or other retirement account passing to an individual beneficiary is also “found” money and just as vulnerable.
But going through retirement money costs more than just the face amount of the assets. IRAs and other retirement plans offer the substantial tax benefit of income tax deferral. Stretching out the inherited retirement plan distributions over a beneficiary’s actuarial life expectancy yields a much greater return than if the beneficiary cashes out the plan and pays taxes immediately on the full distribution plus on any future earnings on those assets.
We show our clients the difference in the value of the assets with or without tax deferral and it’s staggering.
In addition, Once an asset is cashed in (and even before in many states) the IRA is subject to the beneficiaries creditors, future creditors, ex spouses, etc. In addition, inheritances, including assets in an inherited IRA, may be considered “resources” for determining SSI/Medicaid eligibility. At least, temporary loss of SSI/Medicaid or other government benefits by a disabled beneficiary is hard to avoid if there is more than $2,000 in the inherited IRA.
Assets held in a properly drafted IRA trust can provide much better protection
and ensure maximum stretch out.
2 of 4: IRA Trusts Blogs/emails will be published on July 24, 26, 31 and Aug 2.
These informative Blogs can also be found here: https://florida-elderlaw.com/blog
Interested in a Seminar on IRA Trusts? – Email me at alice@florida-elderlaw.com
Call our South Florida office at 954-726-6602 for additional information about IRA Trusts,
Estate Planning and any Long term care needs.
