A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Friday, February 25, 2005

Trusts & IRAs

Let's say you have worked your entire life, been a good saver and investor and built up a nice nest egg. Let's say this nest egg is in a Roth IRA. Let's also say you were older when you had kids. You're 65 and your oldest of three kids is 35 years old.

You have read and studied up on IRAs and you are aware that you can pass on your Roth IRA to your kids and your kids can then stretch out their inherited IRAs over their lifetimes, allowing them to build the IRA into a sizeable nestegg over their lifetimes. But, you have concerns that they will simply cash out the IRA upon inheritance and blow it on a Ford Thunderbird. Is there anything you can do about it?

Yep, there sure is! It is called a trust. You can set up a trust, with the help of an astute estate planning or trust attorney, that will give you some control as to how much and when your kids can spend their inheritance. This is a great way to send the message "I'll always be around!" Your kids may not like it, but it is for their own good.

But, before you go off signing some expensive trust document, you better arm yourself with some important information first. If you mess it up, you could ruin your kids' opportunity to stretch their IRAs, defeating the whole purpose of the trust in the first place.

The very first thing you should do is read Ed Slott's Parlay Your IRA Into a Family Fortune. Read it from cover to cover. Then and only then will you be prepared to meet with an attorney. In fact, the book may give you information that your attorney may not even know yet! I'm serious about that. The concept of the stretch IRA is still pretty new and a lot of attorneys and CPAs have not yet grasped the significance of this concept. So, be prepared to educate them!

That's it for now. In my next few posts, I'll share with you what I know about trusts and what to be aware of. Keep in mind, I AM NOT AN ATTORNEY. I'm simply sharing helpful tips.