Beneficiary mistake #3: Trust or Estate as IRA beneficiary

Many assets allow you to name a beneficiary, that is, whom you would like to receive the asset in the event of your death. Life insurance policies and retirement accounts are common examples but some other account types such as bank accounts and non-retirement investment brokerage accounts also may allow you to name beneficiaries through a Pay on Death (POD) or Transfer on Death (TOD) form. While these forms are generally straight forward, they often lead people to make inadvertent errors. We have identified six common mistakes people make when preparing for the distribution of their assets after death. This is PART THREE OF SIX.

Leaving retirement assets to a trust or estate
While wills and trusts can be effective planning vehicles, unfortunately, they are not always the most tax-advantageous when it comes to retirement accounts. While individual beneficiaries can choose life expectancy distributions which allows them to spread the tax liability over their lifetime, most trusts and estates do not have that option and are forced to take distributions within five years. Moreover, trusts and estates are taxed differently than individuals and can often pay a higher rate. This can create a significant tax burden by having large distributions taxed a potentially much higher rate.

Note that some trusts can be set up to allow for inherited IRA distributions but they must have very specific language written into the trust document in advance. You would need to work with an estate planning attorney that specializes in this type of trust.

Being aware of this type of common mistake can help you better prepare to ensure your wishes are followed in the event of your death. At Kramer Wealth Managers, we can help you coordinate with an estate planning attorney to make sure your estate goals and financial planning goals are in line with your personal WealthPath.

While the tax or legal guidance provided is based on our understanding of current laws, the information is not intended as tax or legal advice and should not be relied upon as tax or legal advice. Neither FSC Securities Corporation, nor its registered representatives, provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.

Adrianna Rocha

Client Relations Representative

240-379-6929 V
240-439-6889 VP
512-379-6909 FAX
adrianna@kramerwealth.com

Adrianna Rocha joined Kramer Wealth Managers in 2021.

Adrianna is responsible for client experiences and service. As part of the customer service team, she strives to help and provide top-notch service to our clients. As part of her role, she communicates with clients through videophone, schedules client meetings, prepares and processes forms, and gathers information for our advisors.

My clients’ accomplishments are also my own. 

Adrianna Rocha graduated with a Bachelor of Arts in Communication Studies from Gallaudet University in 2017. Before she joined our team, she worked in the customer service industry for nearly a decade. She excels in human-to-human relations and takes pride in not only her own accomplishments, but her clients’ as well. Adrianna enjoys chatting about her slight obsession with dogs, houseplants, essential oils, and food: especially Mexican food! She is also a proud fur-mama to her beautiful Aussie-mixed pup, Ziva.

Adrianna is not registered with FSC Securities Corporation.