Person A has a brother who has had a tough life, not him but spouse and daughter with serious addictions. killerFinances are terrible, brother is 52, future is no brighter..Person A will start a Roth IRA and fund it for 13 yrs to retirement age for brother.6k/yr or the max annually. Invest in equities.Q is how can the IRA be protected from bankruptcy (I know it would not be liquidated by the court) and interim needs, where the brother might be forced by family to cash it out.Can a irrecoverable trust control an IRA? Or ? Other ideas?THx susan400
Other ideas?Step away.Having dealt with a vaguely similar family situation, at least in my case, ended badly with plenty of hurt feelings when gratitude turned to entitlement attitude after a few years. Then throw in the discovery that the money was wasted, not good.JLC
Person A will start a Roth IRA and fund it for 13 yrs to retirement age for brother.6k/yr or the max annually. Invest in equities.Q is how can the IRA be protected from bankruptcy (I know it would not be liquidated by the court) and interim needs, where the brother might be forced by family to cash it out.If person A wants to control the money, putting it in a Roth opened in brother's name is a terrible idea, since Roth contributions can be withdrawn by the owner at any time without tax consequences after being added to the account.Besides that, there are lots of issues about opening an IRA for someone else if you are not controlling their tax filings and confirming what type of IRA they are eligible for, and making sure that the IRA is properly accounted for on the tax filing. Can a irrecoverable trust control an IRA? Or ? Other ideas?That "I" in "IRA" - means "Individual" - not "entity" so I doubt that a trust controlled by person A would be allowed to own an IRA set up for brother. But I am not a lawyer, nor do I play one on TV, and this is a case where I would highly recommend that you consult someone who is familiar with tax/estate planning law.AJ
One way it can be controlled to a point is to limit access to the account. Let the brother know you are doing this, have him sign the papers and limit everything to electronic delivery. Have any documents go to person A's address. Person A can then manage the account online, doing the investing. At the appropriate time, person A can turn over the account to the brother. This would essentially be protecting the account by denying access. It can be circumvented by the brother contacting the broker, but I don't think anyone else would be able to do so. To make it legal, you can get the brother to sign a Limited Power of Attorney. I know of one investment manager who does something similar.
From your description, it sounds like your intentions are good. But odds are this will ultimately blow up.Brother MUST see the IRA (Roth or Traditional) as a tax-deferred savings plan that will help to provide for his financial needs in retirement. If he does not see, or understand, or care to understand this relationship, then all of what is being done for him will be lost. The odds are that when Brother knows this IRA is his, he'll want the money NOW (taxes be damed), which will be upsetting to 'A' who went through the trouble to set this up for him. Brother will quickly spend the money on some vice(s), further upsetting A.Only people can own IRAs. Trusts can be beneficiaries, providing they meet certain pass-through requirements. I've read of some obscure way of directing mandatory inherited IRA distributions to spend-thrift trusts, but I have no idea if this would be possible with a competent adult IRA owner....I doubt it would.IRA values of up to $1MM are excluded from one's Federal bankruptcy estate, but if the person does not qualify under Federal bankruptcy rules, the state may allow creditor judgements to claim IRA assets. But this varies by state.BruceM
If Person A is simply concerned about Person B's financial security at retirement, perhaps a better way to ensure such security (without worrying about liquidating) would be for "A" to set up some type of (non-retirement qualified) trust for "B's" behalf and benefit. Perhaps the trust can go so far as to specify the types of benefits and expenses it would cover after age 65. This would give A the flexibility to add more or less (than the max Roth contribution) each of those 13 years.Alternatively, "A" could simply hang on to those funds but "tag" them for "B", to be paid out as a "gift" (up to the max allowed) each year once "B" has reached retirement.Either of these options allows "A" to retain control and keep the funds from those unscrupulous sorts. And there would be no need to worry about whether there was sufficient income to make the contributions, etc.Given the scenario, it seems like 65 may not be a reasonable target age for retirement for "B" ;(Making Trax
One way it can be controlled to a point is to limit access to the account. Let the brother know you are doing this, have him sign the papers and limit everything to electronic delivery. Have any documents go to person A's address. Person A can then manage the account online, doing the investing. At the appropriate time, person A can turn over the account to the brother. ...get the brother to sign a Limited Power of AttorneyYhis is exactly what I have done with my kids's IRAs. They signed all the papers, and at some (low) level know that they have an account, but they never see anything. Out of sight, out of mind. And since "Dad is handling everything", they don't get constantly reminded about the account, since they never see any paperwork from the broker.Maybe it would be somewhat different for a brother, but the most recent time that a kid needed to sign any paperwork, the conversation went like this:me, "Sign when it says sign, write your DL # and SS # where it says to, don't look at anything else on these forms, and don't ask any questions.him, "Ok. I assume that when I need to know the details, you'll tell me, right?"me, "Yes. Oh, and give me a stamped envelope."
Thanks to all responders for your candid advice.Maybe it will be a trust instead of IRA, doit through a Trust that pays out staring un yr 12 , distribute an equal % for 25 yrs forward and not even tell him til 1st distribution.Still have blow up risk
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |