Broker Check
Why not have your cake and eat it too?

Why not have your cake and eat it too?

| September 26, 2017

Please read if you have significant assets within your retirement account! 

There is a planning option that we recently learned about that you may want to consider. 

Typically, spouses simply leave their individual retirement account (IRA) to their surviving spouse by direct beneficiary designation. This works fine if the surviving spouse elects to keep the interest in the retirement account and roll it into an inherited IRA.

However, in situations where the original owner may want to allow a surviving spouse the right to the income and principal but does not want the remaining principal amount to be added to the surviving spouse’s gross estate, there is an alternate option to consider.

Here, the account owner could amend his/her estate plan and beneficiary designations to designate the assets to a disclaimer trust. A disclaimer trust may allow the surviving spouse to still receive income and principal from the account, but it does not count as part of the estate of the surviving spouse, and therefore is not includable in the gross estate of the second spouse to die.

This is similar to the marital trust estate tax exemption planning that’s been done for decades but for IRA's! 

For years, clients and their attorneys have had the option to "disclaim" the account and let it go to the next in line, but then they would lose all access to and control of the funds. 

This was often an agonizing decision as forecasting future cash flow needs is not perfect, so it was a balance between security and spending money on taxes.

Please consider reviewing this with your attorney as this could potentially save significant amounts of taxes for your family in the future as well as provide the opportunity to control the contingent beneficiary at the death of the surviving spouse. (Perfect for second marriages and kids from a previous marriage.) 

Of course, the children (or whoever you’d like to get the money eventually) would still be in line—there is just an added opportunity for more money by reducing taxes. 


Thank you to attorney Mary Frances Price for bringing this opportunity to my attention and contributing to this content.