The
only time your Will would control who gets your IRA is if your estate is the
beneficiary. Generally, it’s not a good idea to name your estate as the
beneficiary of your IRA.
Even though you made sure to
prepare your Last Will and Testament, it is not always the final word on the
distribution of your assets. Take for example your IRA. An IRA will be directed
by the common beneficiary form – of which you may have completed without
thinking through the potential outcome.
Warning: do not designate your
“estate” as the beneficiary of your IRA. This severely limits the distribution
(and taxation) options available to your heirs. This matter was explored in a
recent article in The Slott Report
titled “IRAs and Wills Don’t Mix.”
While your “estate” can be the
beneficiary of your IRA and your Will thereafter determines the distribution of
the retirement funds, this might not be best idea tax-wise. IRAs are very
specific and peculiar assets with very specific inheritance rules. If your
“estate” is the beneficiary of your IRA, then very “unfavorable” withdrawal
rules apply. Instead of the IRA being withdrawn over the life expectancy of the
beneficiary (typically younger than the plan owner), the funds must be
withdrawn within five years or perhaps over your remaining life expectancy.
Yes, this can get rather complicated.
Make sure you consult with
competent legal counsel when coordinating the distributions from your Last Will
and from your IRA.
Please
visit our website for information on
elder law and estate planning issues, and sign up for our free monthly e-newsletter.
The archive on our website contains numerous blog posts on these legal
areas as well. You can also “friend” us
on Facebook (R Christine Brown) to receive periodic posts on elder law issues.
Reference: The Slott Report
(July 29, 2013) “IRAs and Wills Don’t Mix”