Q: My financial advisor told me, I don’t need a trust to be my IRA beneficiary because my children are responsible enough to do the proper stretchout (and/or he’ll be sure that my children do the stretchout) – – so why do you think I need an IRA Inheritance Trust®?
A: Even though you may feel a child as a beneficiary is responsible enough to take care of the stretchout on his or her own, or seek proper advice, there are lots of reasons why I’ve found this does not occur. For example, your child may not be aware of the required minimum distribution rules and their choices and simply have the custodian send them a check which they deposit. Or he or she may think they can merely rollover your IRA into their own. Both of these will cause your entire IRA to be taxed immediately and blow the stretchout or result in what I call the “blowout”! These things happen more often than you might suspect, because there’s no guarantee that your beneficiaries will seek your financial advisors’ advice first, before they run to the custodian to issue a check. And don’t forget that your beneficiary’s spouse (or some other third-party) may influence your beneficiary to withdraw the money and spend it (or loan it to them)! So, while it sounds good in theory to rely on your beneficiaries to do the stretchout or your financial advisor to guide them through it, you take a big risk if you don’t use the IRA Inheritance Trust® – – a risk that your family and loved ones may lose over $1 million like in the example we showed you!
But let’s assume the best – – that your child does the stretchout properly. There’s still the issue of protecting his or her inherited IRA from claims of a spouse in divorce, creditors and lawsuits, loss of future government benefits they may need if they ever become disabled or require nursing care, and a possible estate tax when your child dies and passes down your remaining IRA to your grandchildren. An IRA Inheritance Trust® also provides substantial protection against these potential problems when you consider that the stretchout of your IRA may occur for many years after you die, these protections become very important reasons to set up an IRA Inheritance Trust®.
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