A terrific article online at Bankrate.com shares 6 ways people go wrong when inheriting an IRA. I won’t repeat the entire article, so, follow the link to read the full article. I will provide a short synopsis on what to do if you might inherit an IRA.
Ask The Current IRA Owner To Make The Appropriate Beneficiary Designations
Beneficiary designations are generally very, very simple to make on IRAs. Just ask for the IRA beneficiary designation form, and fill in the names accordingly. Make sure to make alternate beneficiary designations, too.
I would encourage you not to make your estate a beneficiary of your IRA. If your estate is a beneficiary, then you minimize the tax alternatives available to beneficiaries. Plus, if your IRA is payable to your Estate, then that IRA will go through Texas probate. This means any creditors against your probate estate may get an easier bite at the apple.
However, if you make one of your heirs a beneficiary on an IRA, keep this in mind when you draft your Last Will; you don’t want one heir to “double-dip” from your estate.
Seek Counsel From An Attorney, CPA, And Financial Advisor
After the IRA owner dies, the beneficiary will receive forms asking the beneficiary to make certain elections. One of those elections, for example, asks the beneficiary if he’d like to inherit the IRA in a lump sum
While inheriting a lump-sum of cash sounds enticing, the election to keep the funds in the IRA long-term could be very beneficial tax-wise. As Bankrate.com puts it:
“The stretch IRA is the tax equivalent of the treasure at the end of the rainbow. Hidden beneath the layers of rules and red tape is the ability to shelter funds from taxation while they grow for decades. In the case of a Roth IRA, earnings accumulate tax-free.
One slip-up by the beneficiary or even by the benefactor before death, and that tax gem can be lost forever.”
If You Inherit An IRA, Don’t Wait Around
Again, get advice from a professional before you inadvertently make a costly mistake. The attorney, accountant or financial advisor will tell you if you need to act quickly to make a “required minimum distribution” (RMD). If the RMD isn’t taken out on time, there could be a hefty tax penalty.
If You Are The Named Beneficiary Of An IRA, Don’t Give Away Your Money
If you inherit an IRA as a named beneficiary, then that money is not part of the estate. That means that the property in the IRA shouldn’t be split among the other heirs or used to pay the estate’s debts. Again, it’s always best to discuss this with your probate attorney. However, generally speaking, IRA beneficiaries get to keep the IRA inheritance out of probate court.
Visit www.ShuttLawFirm.com for more information on inheriting an IRA in Texas, what to do if you are named beneficiary, what property does or does not go into the probate estate, or any other Texas probate question, contact Dallas, Texas lawyer Isaac Shutt at ishutt@shuttlawfirm.com.
Shutt Law Firm’s office is conveniently located just north of Dallas, TX, near the intersection of highway 75 and Campbell Road in Richardson, TX.
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You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this article or to discuss a different legal matter. For existing clients, quick phone-calls and brief e-mails are always free at Shutt Law Firm PLLC. Please consider the Shutt Law Firm if you need letters testamentary, to know if you should probate a Last Will, how to probate in Texas, Last Will and Testament, or you need a probate attorney in Dallas, Richardson, Plano, Allen, McKinney, Garland, Addison, TX or surrounding North Texas area.
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