Review Your Beneficiary Designation Forms Regularly
Our lives are constantly changing and our estate plans should be amended and updated to reflect these changes. Many people fail to properly view their IRA beneficiary designation forms as part of their estate plan. Failing to keep beneficiary designations up to date is a recipe for disaster. In a recent case the US Supreme Court ordered that a retirement account was to be paid to an ex-spouse because the account owner failed to update his beneficiary designation form after his divorce.
Regularly review your beneficiary designation forms (and the rest of your estate plan) to ensure that they still reflect your current family situation and your current desires.
Do Not Name Your Revocable Living Trust as Your IRA Beneficiary
A revocable living trust is a very common estate planning tool. It is an excellent strategy for avoiding probate and smoothly passing assets to your beneficiaries. It is not, however, the best vehicle for transferring retirement assets and IRAs in trust to your beneficiaries. Using a revocable living trust as a beneficiary will often mean that the maximum stretch-out distributions that can be obtained will only be over the life of the oldest beneficiary, cheating younger beneficiaries out of tax preferred distributions over their own life spans. Even worse is the possibility that your beneficiaries won't get stretch-out distributions at all, or that your creditors will be able to get to your retirement accounts through the revocable living trust.
Revocable living trusts are an excellent tool for what they are designed for: avoiding probate. In most cases they should not be named as an IRA beneficiary.
Avoid Engaging in "Prohibited Transactions" With Your IRA
"Prohibited transactions" refers to certain transactions that are not allowed by the Internal Revenue Code. If you cause your IRA to engage in a prohibited transaction it will cease to be a qualified retirement account. In one case a court found that an IRA owner caused the IRA to engage in a prohibited transaction and it was therefore no longer an IRA. Because it was no longer an IRA it lost all protection as an exempt asset under state and federal bankruptcy laws and was available to be distributed to creditors.
Carefully consider any transactions that you may cause your IRA to engage in. If you cause a prohibited transaction you are opening your IRA up to attacks from credtiors.
Additional resources provided by the author
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