So, you prepared your Last Will and Testament. Congratulations. However, that does not mean your Will is the final word on the distributions of all of your assets.
Warning: do not designate your “estate” as the beneficiary of your IRA by design or default. Otherwise you will severely limit the distribution (and taxation) options available to your heirs. This matters 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 Last Will can thereby determine the distribution of the retirement funds, this might not be best idea tax-wise. IRAs are a 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 Instead of the IRA being withdrawn over the life expectancy of the beneficiary (typically younger than you, the plan owner), the funds must be withdrawn within five years or perhaps over your remaining life expectancy.
Yes, this can get rather complicated in Overland Park and elsewhere.
Make sure you consult with competent legal counsel when coordinating the distributions from your Last Will and from your IRA.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone.
Reference: The Slott Report (July 29, 2013) “IRAs and Wills Don’t Mix”
No lion was hurt or injured in the posting of this blog.