The Elder Law Minute™ Maximize the Benefits of your IRA in Estate Planning By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq. Individual Retirement Accounts (“IRAs”) are very popular investment vehicles for retirement, but IRAs also need to be taken into account when contemplating one’s estate plan. Although IRAs can be used to provide for one’s intended heirs either directly or through a trust, proper planning is still required to ensure maximization of the benefits of this unique vehicle and avoid unnecessary taxes. An IRA is a personal savings plan that allows an individual to set aside money for retirement and simultaneously create tax savings. The advantage of an IRA is that often an individual can deduct from his/her taxes all or a portion of the contribution made to the IRA. Further, earnings in a traditional IRA are generally not taxed until the earnings are distributed to the IRA holder. This typically does not start until the IRA holder reaches the age of 70 ½ when distributions of income become mandatory. Earnings in a Roth IRA are not taxed nor does one have to start taking distributions at any age, but contributions to a Roth IRA are not deductible. Any amount remaining in one’s IRA upon his/her death can be paid directly to a beneficiary or beneficiaries. From an estate planning perspective, the most critical thing to remember with an IRA is to name a beneficiary (or beneficiaries). Therefore, it is important to review your beneficiary designations annually. While a spouse is usually the logical choice for a married beneficiary, each IRA holder should be certain to name contingent beneficiaries as well. If no beneficiary is named or the named beneficiary predeceases the IRA holder and there is no successor beneficiary, the IRA will pass according to the default rules of the IRA plan which generally is to the holder’s estate and will be subject to the lengthy probate process. If an IRA holder does not need the funds held in the IRA for his/her retirement and instead wants to use them to provide for future beneficiaries, “stretching out” the IRA might be an idea that warrants exploring. To do this, when the IRA holder reaches the age of 70 ½, he/ she should withdraw only the minimum required distribution thereby leaving more assets in the IRA. When the IRA holder dies, the beneficiary can also stretch out the distributions over his/her lifetime and then designate a second-generation beneficiary. If appropriate, it is prudent to name a young beneficiary, because the younger individual receives smaller distributions and this gives the funds in the IRA additional taxdeferred years to grow. In some cases, it may make sense to name a trust as a beneficiary. This is particularly true if the IRA owner has minor children, children with special needs or a child who has poor spending habits. However, the trust must be properly drafted in order to avoid negative tax consequences. If the trust is drafted as a so-called “conduit” trust, then the distributions from the IRA to the trust after the participant’s death can be stretched out over the life expectancy of the oldest ELDER LAW trust beneficiary. Anyone contemplating leaving his/her IRA to a trust should seek the counsel of an experienced estate planning attorney to ensure that the trust is properly drafted. Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Forest Hills, Great Neck, Manhattan, Brooklyn and Cedarhurst, NY. This article was written with the assistance of Debby Rosenfeld, Esq., a senior staff attorney at the firm. The firm can be reached by calling (718) 261-1700, (516) 466-4422, 212-751-7600 or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. North Shore Towers Courier n March 2012 41 ROnald Fatoullah, ESQ, CELA* TAKE A RIDE WITH DON’S CAR SERVICE FLAT RATE TO AIRPORTS (JFK OR LA GUARDIA) Each additional person $5.00 FLAT RATE TO NYC Each additional person $5.00 $35.00 $48.00 RIDES TO UPSTATE N.Y. & OUT OF STATE – PRICES ARE NEGOTIABLE CALL 24 HOURS/ 7DAYS (516) 220-2783 REFERENCES AVAILABLE FROM NST CLIENTS UPON REQUEST et them at Chase before you go. G Our commitment to the community is matched only by our commitment to our customers. JPMorgan Chase Bank/Member FDIC ❍ Savings/Checking ❍ Safe Deposit ❍ Banking Cards ❍ Retirement Planning ❍ Credit Solutions ❍ Tax Advantage Investing Hardy Singh (718) 423-4342 TOP BINGO HALL PLAY Everyone Loves BINGO! Must be 18 and Over Ad sponsored by Charities of Top Bingo Hall IT’S FUN! Win Up to $6000! Computerized Bingo Available Free Parking • Free WiFi Every day except Wednesday & Sunday at 11AM Every night Except Monday Night at 7PM 220-34 Jamaica Avenue Bellerose/Queens Village, NY 11428 718.740.2524 • topbingony.com For More Information: Contact Barry Kessler, (516) 315-5305
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