What are the Most Important Things To Know About an IRA?

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Believe it or not, the IRS just might end up inheriting 70-90% of your IRA. 

I know, you paid $3,000 to an estate planning attorney to have him draw up your will and living trust, and you naturally assume that he or she addressed all the necessary issues to ensure that your IRA will pass smoothly to you beneficiaries. Right? Wrong!!

Estate planning attorneys can help you transfer assets that are easy to inherit like stocks, bonds, homes, etc. IRAs, on the other hand are not easy to inherit because they are subject to numerous complex and convoluted rules and tax laws. Although you would think they would, most estate planning attorneys (as well as CPAs and financial advisors) do not know the rules and tax laws related to IRAs and other qualified plans.  As a result, they often make mistakes and oversights that can subject you and your IRA beneficiaries to excess, unnecessary taxation. 

For example: Many estate planning attorneys recommend that you name your living trust as a primary or contingent beneficiary for your IRA. They don't realize that leaving your IRA to a living trust eliminates the ability for individual beneficiaries to "stretch" the required distributions from their inherited IRAs over their individual life expectancies, which can minimize taxes and create greater IRA wealth. It also creates tax, management and control problems. In the worst case scenario, if there's a charity or an institution named in the trust, leaving an IRA to the trust can result in the inadvertent liquidation of the entire IRA immediately upon being inherited, with taxes due in full.