The rules and regs governing the creation, accumulation and distribution of Individual Retirement Accounts are some of the most complex in the entire tax code. The IRS and the taxpayers have decidedly different agendas.
No surprise there.
No, really, the IRS wants distributions to come out of your account larger and faster. Why? Because anything paid out to you is taxed as "ordinary income."
On the other hand, you want to take as little as possible over a longer period of time. You pay less in taxes and the remaining account balance continues to compound tax-deferred. Sweet.
Since the IRS makes the rules, the house always wins ... and there are severe penalties for taking distributions too soon, too little and too late.
But you know all of that, right?
My objective for this blog post today is not to rehash the myriad rules and regs, trip wires and tax traps, but to alert you to another danger you may have missed last summer.
Did you catch the Clark v. Rameker decision by the United State Supreme Court on June 12, 2014?
Spoiler alert: If your children inherit your IRA "directly" as designated beneficiaries, then the funds are available to their creditors!
Accordingly, such things as divorces, lawsuits and bankruptcy trustees can snag the funds in a New York minute.
In many families an IRA is frequently one of the largest assets passed on to beneficiaries and the Clark decision by SCOTUS sent many IRA owners searching for a better way to protect this money for their heirs.
But, alas, is there any solution?
Indeed, there is - a "Stand-Alone IRA Trust."
In fact, this was the subject of a recent article in the Kokomo Perspective titled “Are You Trustworthy?”
The article explains that an IRA Trust is a "special type" of revocable living trust (i.e., separate and independent of any other revocable living trust you may have for your non-IRA assets) designed to receive your IRA accounts for the benefit of your loved ones after you pass away.
Properly prepared, an IRA Trust offers unique protection and control.
As with any advanced estate planning, this is not a do-it-yourself project. Consult with an experienced estate planning attorney about the IRA trust and see if it may be of benefit to your and yours.
Reference: Kokomo Perspective (March 29, 2015) “Are You Trustworthy?”