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Author: kpgould Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75825  
Subject: IRA and next generation beneficiaries Date: 2/16/2000 8:03 PM
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In the last year,I have rolled my 401-K into an IRA and have been doing my own foolish investing. I am 52 and after crunching some estate planning numbers, I am delighted to find that my IRA, which is healthy, will not be needed in retirement. So I will have the advantage to foolishly invest for the very long term for the benefit of my grandchildren yet to be born. My question is as follows:

As I read the estate tax laws, it seems that if I designate a "next generation" beneficiary, that when I begin forced withdrawls at age 70 1/2, I will be able to minimize them because they will be based on a combination of both mine and the beneficiary's age. And that at my death, the beneficiary receives the IRA with no estate tax penalty, but must continue to withdraw the taxable dollars based on the IRS schedule. But the key to this is that the IRA is not figured into the taxable estate. Do I have this correct??? I have read the regs on the IRS site, and it seems to say this, but one cannot be to careful. Anyones help in pointing me to a definative answer would be appreciated.
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19190 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/16/2000 8:14 PM
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At age 70 1/2 you have to start taking the money whether you need it or not. It is untaxed money, and Uncle wants his. He's waited since how long?
You read it right. Chris

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19191 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/16/2000 8:23 PM
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I do believe that there is a stipulation. Say you name your child who is 45 when you're 70.5, I think your withdrawl rate is based on 60.5 age (ten years younger is max difference) instead of the 45 age rate.

JLC

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19193 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/16/2000 9:02 PM
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kpgould: "In the last year,I have rolled my 401-K into an IRA and have been doing my own foolish investing. I am 52 and after crunching some estate planning numbers, I am delighted to find that my IRA, which is healthy, will not be needed in retirement. So I will have the advantage to foolishly invest for the very long term for the benefit of my grandchildren yet to be born. My question is as follows:

As I read the estate tax laws, it seems that if I designate a "next generation" beneficiary, that when I begin forced withdrawls at age 70 1/2, I will be able to minimize them because they will be based on a combination of both mine and the beneficiary's age. And that at my death, the beneficiary receives the IRA with no estate tax penalty, but must continue to withdraw the taxable dollars based on the IRS schedule. But the key to this is that the IRA is not figured into the taxable estate. Do I have this correct??? I have read the regs on the IRS site, and it seems to say this, but one cannot be to careful. Anyones help in pointing me to a definitive answer would be appreciated."


I am no expert, but as I understand the rules, if anyone other thanyour spouse is named as beneficiary, then the lowest age you can use for the joint life expectancy is 10 years younger than your age. The IRC is way ahead of you here. If you collect yourself a "young honey" (or "young hunk" as the case may be) for a spouse, then you may use her/his actual age.

You are also mistaken in believing that the IRA is not counted in your taxable estate for FET purposes. It may pass outside of probate, BUT IT IS MOST DEFINITELY IN YOUR ESTATE FOR FET PURPOSES.

In addition, if do pass more than a certain amount (currently $1,000,000 IIRC) to a generation younger than your children, IOW you grandchildren or great granchildren, then there is also a generation skipping tax (GST) that will be imposed. From what I understand, it can be a PITA. Also, "criser" has previously suggested that many estae planners start looking into generation skipping transfers if you estate exceeds $2-3MM; details can vary and may also depend on how well off your children already are.

In addition, IIRC, the other beneficiaries receive no step-up in basis for assets within the regular IRA and they will owe ordinary income tax on the withdrawals. I have read from several sources that it may be better for planning purposes to use up the regular IRA and pass along cqpital assets that will receive a step-up basis and may receive LTCG tax treatment.

Anotehr planning idea that I have heard of is to convert all or some of the regular IRA to a Roth IRA. Funds used to pay taxes on the conversion will n longer be part of the estate for FET purposes, in addition, IIRC, Roth IRAs do not require MRDs at age 70 1/2.

You have some wonderful planning opportunities avilable to you, but I do not think that it is entirely a do it yourself project, but it is certainly well worth it, IMO, to have some idea of what will be involved before speaking to your professional advisor.

There is an Inheritance board here on TMF, and there is also an Estate Planning board here on TMF in Speakers' Corner; you may wish to peruse both of those boards, too.

Just my $0.02. Regards, JAFO

Disclaimer

Yes, I am a lawyer, BUT THIS IS NOT LEGAL ADVICE; it is only general information. NO CLIENT RELATIONSHIP IS INTENDED TO BE CREATED, NOR IS ANY SUCH RELATIONSHIP SO CREATED. FOR SPECIFIC LEGAL ADVICE YOU SHOULD TALK TO A LAWYER IN YOUR AREA.




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Author: waldronr Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19212 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/17/2000 7:12 PM
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Has anyone looked into an 'A/B Trust'? I have been researching the subject for the past year. Nolo Press has been the main source of my material, but I would like to hear from someone who has actally set one up.

It looks, so far, like the best way to pass wealth on to later generations, but I'm still open to other means, and still doing the research.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19215 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/17/2000 7:59 PM
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waldronr: "Has anyone looked into an 'A/B Trust'? I have been researching the subject for the past year. Nolo Press has been the main source of my material, but I would like to hear from someone who has actally set one up.

It looks, so far, like the best way to pass wealth on to later generations, but I'm still open to other means, and still doing the research."


There have been several discussions about A/B Trusts in either the Inheritance board or the Estate Planning board (Speaker's Corner). IIRC, look for posts by Trini.

A/B Trusts allow a married couple to make maximum use of the lifetime exemption equivalent, but are far from the only planning tool.

Hope this helps. Regards, JAFO


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Author: LeftCoastJayhawk One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19217 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/17/2000 8:13 PM
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>>Has anyone looked into an 'A/B Trust'? <<

Am currently setting one up. These appear to be highly useful vehicles for maximizing the use of the FET exemption for both husband and wife. (currently about $650K each, rising to $1M each in a few years) But it appears to me that variations in state laws make it almost imperative to use a knowledgible attorney to set one up. For example, in California I discovered that because we were holding property title (in both real estate and brokerage accounts) as Joint Tennants with Right of Survivorship, this would have caused some loss of the step up in basis for appreciated property. The mortgage lenders/title companies/discount brokers don't tell you that. We should have held title as Community Property. (The A/B trust takes care of those issues.) I have heard that other Community Property states are different. So you need someone well versed in local legal requirements.

Setting this up was also a excellent checkpoint on ensuring that we have properly set up beneficiary's, guardian plans, powers of attorney etc. in the event of disability or a "premature passing."

So I say look into it, but with a good estate attorney. (Arrgg, did I just recommend using a lawyer? The horror....)

--Bob

I'm not an attorney, don't play one on TV, hate 'em all except for the ones I know, and this is not legal advice. YMMV Add other disclaimers here.


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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19277 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/19/2000 2:39 PM
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This thread seems to have branched off from passing an IRA to AB trusts. JAFO's advice re the IRA is right on. To elaborate; if you are unmarried, don't need the money for retirement and you expect to be in the FET tax brackets, CONVERT it to a ROTH NOW if you can, otherwise just get it out of the IRA. Consider 55% FET and 39.6% FIC to your kids to get it out fast to pay the FET totals 94.6% gone to uncle sam (plus state income tax). You can take it out piecemeal to stay in lower brackets and the FIT you pay won't be taxed again in your estate. For instance your 28% saves .55X $28,000 (on a $100,000 withdrawal) or $15,400 more untaxed $ to your heirs.
Only problem is to match the tax deferred growth of the IRA. Look into a Tax Managed fund like Vanguard TM G & I which matches the SP500. You get a step-up tax free at death. ed

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Author: waldronr Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19390 of 75825
Subject: Re: IRA and next generation beneficiaries Date: 2/22/2000 12:12 PM
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There have been several discussions about A/B Trusts in either the Inheritance board or the Estate Planning board (Speaker's Corner). IIRC, look for posts by Trini.

Thanks JAFO, I'm onto them.



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