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Flexibility in an Uncertain Estate Planning World: IRAs and Trusts

We are in a now all too familiar position. We don't know what the estate tax rules will be in 2013. The exemption amount is scheduled to drop back to $1,000,000 per person, and it will not be portable. We have no idea what Congress may or may not do about the situation. And, because 2012 is an election year, they may not do anything until late in 2013 or perhaps early in 2014. Do you need a trust to protect your estate tax exemption, or don't you? Should you name a trust as the beneficiary of your IRA, or not?

My crystal ball is not working. Is yours?

One way to gain some flexibility is to name both a primary beneficiary and a contingent beneficiary for your IRAs and other retirement accounts. This way, at the death of the IRA owner, the beneficiary can disclaim the IRA and it will pass to the contingent beneficiary. One beneficiary can be the spouse and the other can be the trust. The beneficiary has nine months from the date of death to assess the current estate tax rules and determine which beneficiary will get the most advantages from the inherited IRA. You can look at the income needs of the spouse, sources of income, the estate tax implications of the spouse inheriting the IRA, the income tax implications of required distributions, and how the stretch will work for the beneficiaries involved. Then you can make an informed decision and get the best deal available for the beneficiary.

The spouse can be the primary beneficiary with the trust as contingent, in which case when the spouse disclaims the IRA, the IRA passes to the trust beneficiary. Or, the trust can be the beneficiary with the spouse as contingent. Then if the trust disclaims, the IRA will pass to the spouse.

IRAs, trusts, and disclaimers are complicated estate planning topics. Be sure to consult with knowledgeable advisors before naming a trust as your IRA beneficiary and be sure the beneficiary consults with an attorney before doing a disclaimer. You can find the names of Ed Slott-trained advisors on our website, www.irahelp.com.

-By Beverly DeVeny and Jared Trexler


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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

Can I transfer money from my IRA to my husband's Roth IRA? I am 35, and he is 36.

Thank you!

Gail Clements

No. The only way your IRA funds can be transferred to your husband’s IRA is in a divorce or after your death. Even then, it would have to be transferred to a similar IRA, for example an IRA to IRA or a Roth IRA to another Roth IRA. In this case, you cannot transfer your IRA into your husband’s Roth IRA.