Three Simple But Valuable Pieces Of Advice For Dealing With IRA During Estate Planning

An individual retirement account (IRA) provides unique challenges during estate planning. If you don't plan for it well, it can go to your estate and end up in the hands of the wrong beneficiaries. Here are three simple pieces of advice to help you get your IRA to the right people:

Name a Beneficiary

The easiest way to ensure the right persons gets your IRA account is to name them as the beneficiary. That way the account won't be part of the estate, which means it won't pass through probate (a costly and lengthy affair). If you don't name a beneficiary, then the IRA becomes part of your estate and goes through probate. In many cases, naming the beneficiary ensures that they get the money as soon as possible, but there may be a few exceptions as explained in the sections below.

Don't Ignore Your Spouse

Your spouse might get their hands on your IRA even if you didn't name them as a beneficiary. For example, in a community property state, an IRA is community property. As such, both spouses have equal rights to the account if it was funded by community property, such as salary, which is usually the case. If your IRA is a community property, your spouse owns half of it. Therefore, the other beneficiary will only get the other half.

In fact, even if you aren't in a community property state, your spouse may still get at least a share of your IRA money. If your spouse feels that you didn't bequeath hem enough money, they might convince the court to get a bigger share of your properties, which may include the IRA. This is because states don't want people to leave their spouses destitute.

Decide Between Per Capita and Per Stripes

Finally, you ought to decide what happens if a beneficiary dies before taking control of their share of the account. There are two specific ways of dealing with this issue:

  • Per stripes – For this option, if a beneficiary dies, the share of the IRA they would have received goes to their heirs, and not the other beneficiaries. Consider an example where you have left your account to three children: Mary, Jane, and Tom. If Tom dies, his inheritance passes to his children, and not to Mary and Jane.
  • Per capita distribution – In this case, the account is distributed equally to the surviving beneficiaries. Using the example above, if Tom dies, his share of the money will go both to his children and his siblings (Mary and Jane).

The key to dealing with IRA in your estate planning is to understand all the legal options and choose the best decision as per your wishes. Consult professionals such as Linn Schisel & DeMarco Attorneys At Law to learn more.