Q Who Should I Name as the Beneficiary of my IRA?
Your individual retirement account "IRA" may be one of the most valuable assets you own. In order to decide who you should name as the beneficary of your IRA, you need to weight the tax consequences along with the need for protecting the IRA from potential future creditors.
If your children are minors, the decision is simple. Minor children cannot inherit so you should set up a trust to own and manage your assets, including your IRA, until your children are old enough to responsibly manage the money you leave for them.
If your children are adults, the quesiton becomes more complicated. If you name your adult children as the beneficiaries of your IRA, they can, under current law, continue to strecth the IRA over their lifetimes. There are significant tax adantages to doing this. However, they are not required to and could just cash it out. Also, under a new ruling by the U.S. Supreme Court which you can read about by clicking here, inherited IRAs are subject to creditors claims.
So if you have any concerns about your children's financial management skills or the possibility that they may be subject to creditor's claims in the future, you should consider naming a trust as the beneficiary of your IRA. A properly prepared trust can provide significant tax advantages as well as protecting the IRA from potential creditor's claims of your children.
To learn more about protecting the money you leave for your children from divorce and creditor's claims, click here.