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Consider trusteed IRAs when planning to leave them to heirs

One of the most common worries that many in Boca Raton share when preparing their wills is that their heirs will be tempted to simply blow through their inheritance rather than use it to help secure their own financial futures. To combat these fears, many banks and investment companies have begun to offer trust products that disperse funds out gradually over a period of time. These types of accounts help beneficiaries by preserving assets longer and helping them to avoid certain tax issues.

Many who have contributed to an IRA throughout the course of their working lives and who don't anticipate needing those funds during retirement often wish to leave those to their heirs at will. For those to whom bequeathing such an asset is an option, it's recommended that they consider a trusteed IRA. These accounts allow for a long-term distribution of assets, while being easier and less expensive to set up and maintain than a typical trust.

While trusteed IRAs certainly do have drawbacks, such as lack of flexibility for beneficiary withdrawals and potential issues with the IRS not qualifying the asset for extended withdrawals, the benefits far outweigh them. Through this form of IRA, the owner can stipulate that a beneficiary can only receive minimum withdrawals annually, with the rest left to grow in a either a tax-deferred or, with a Roth IRA, tax-free status. Contrast that to receiving a lump sum inheritance of which a large percentage may be eaten up by taxes. And even the risks of trusteed IRAs can be mitigated; simply ensure that it's named as a beneficiary on one's IRA beneficiary designation form, and that it counts as either a "conduit" or "see-through" trust product.

As estate planning becomes more complex with the introduction of new products to consider such as trusteed IRAs, one might wish to consult with an estate planning attorney to see which of these products would most benefit his or her heirs.

Source: MarketWatch "Trusteed IRAs can help heirs manage inheritance" Kelly Greene, Dec. 19, 2013.

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