Families inherit
money and sometimes make the right moves investing and spending. Inheritances
can also ignite disruption, divorce, and a host of bad behavior far from the
hopes and plans of the benefactor.
What happens when
you leave what’s probably one of your biggest investments: your individual
retirement plan?
Did you know that
Individual Retirement Accounts, including Roth IRAs, are not protected by the
federal government under ERISA, except in the case of bankruptcy?
Hopefully, most of
us don’t need to worry about such creditor protection, but still, your estate
plan is your legacy and it needs to be structured to best serve those you
intend to benefit from your assets, including your retirement money.
Plan for Future Changes
Perhaps most
important, your estate plan must address potential disruptions: the U.S. tax
code will almost certainly change, your heirs will experience life’s normal
challenges and opportunities, and something you never considered may befall
those you leave behind. Early death, disability, and divorce all happen every
day.
Planning ahead of
time is key. What if you leave your retirement money to your estate instead of
to a person? What if your beneficiary dies before you?
You could use
specialized trusts to help mitigate many risks, such as the danger of a family
beneficiary blowing the inheritance. A number of vehicles exist for restricting
a beneficiary’s (irresponsible) access to the money. For example: an incentive
trust that pays out only if the beneficiary meets certain conditions and goals.
A spendthrift trust also allows for monthly allowances or periodic payments for
either the life of the beneficiary or until the funds are gone.
You worked hard to
save for your golden years. When the inevitable day comes and you no longer
need what money remains, make sure you leave it behind the best way.
