What Every Spouse Needs to Know About Inheriting IRAs

Inheriting an individual retirement account (IRA) can have some unforeseen pitfalls, and a few of the potential mistakes (and steps to avoid them) depend on if the beneficiary is a surviving spouse or another type of beneficiary. There are several solutions to this problem, depending on the tax or retirement goals of the individual inheriting the IRA.

An often unattractive option from a tax planning perspective, a person can distribute all of the IRA assets within five years of the original IRA owner’s death. The distributions will be included in gross income and taxed in the same way they would have been to the original owner, but if there is a need for cash, it needs to be considered.

A more appealing option for some is that of establishing an inherited IRA. This is accomplished by changing the legal name of the IRA and having the title include the name of the original owner, the fact that the original owner is deceased, “for the benefit of,” and the name of the inherited owner. Each custodian may have its own particular wording, so be aware. For non-spousal beneficiaries, the required minimum distributions (RMDs) must begin by December 31 of the year following the original IRA owner’s death. For spouses, it can wait until the deceased spouse would have turned 70 1/2, or the surviving spouse can use their life expectancy.

Surviving spouses have the option of using the spousal rollover. In essence the spouse can distribute all of the assets of the deceased spouse’s IRA into their own IRA or a new IRA for that purpose. The IRA is treated as if the surviving spouse was the original owner.

See Bob Carlson, What Every Spouse Needs to Know About Inheriting IRAs, Forbes, September 18, 2018.

5 Questions to Ask Your Estate Planner After the New Tax Law

An estate plan is like a car or a house: It needs regular maintenance to function as intended. Yet unlike your car or home, external events can create the need for adjustments. Among such events is legislation like the tax bill Congress passed in late December.

So this is an important time to schedule a meeting with your estate planner and be certain your plan is up-to-date. Even if your estate plan won’t be affected by the new tax law, it’s smart to confer with your estate planner periodically to be certain your current wishes are reflected in your estate planning documents.

During this checkup, you may find that your plan no longer meets all of your needs because of changes in your life and the lives of your heirs. Or you may find that your plan didn’t cover your needs from the get-go. In my experience, many clients leave their estate planner’s office with a thick folder of documents and fail to read them carefully or discuss them in detail with their planner before signing.

When you meet with a professional for a thorough evaluation and possible updating, you might ask some key question to assure your plan documents fully support your interests and those of your heirs, including these five

1. Will the new federal law affect my estate tax picture?

Estate tax is the tax that estates pay governments upon death; when it applies, there’s less left for your heirs. The federal government exempts a certain amount of an estate’s value from this tax and Congress just doubled that amount, known as the exemption. The new law eliminated tax on estates for many wealthy families.

Read More at: 5 Questions to Ask Your Estate Planner After the New Tax Law, by David Robinson, CFP, Jan. 29, 2018, accessed 10/16/2018.

California Homeowners Pass Low Property Taxes to Their Kids and is Highly Profitable to an Elite Group

California is the only state to provide a tax break that extends the Proposition 13 advantages of strictly limiting property increases to inherited property, including income that is solely used for rental income. The extension was enacted 8 years ago and had the intention of helping adult children not lose their family home when their parents passed away. But instead of helping the middle class the law is allowing a wealthier class of citizens take greater advantage of their predecessors investments.

In Los Angeles County, as many as 63% of homes inherited under the system were used as second residences or rental properties last year, and the trend continues in other counties along the coast. And n Los Angeles County alone, the tax benefit cost schools, cities and county government more than $280 million in revenue last year. Proposition 13 and the inheritance tax law place no limits on how many levels of descendants may take advantage of the tax break, and the homeowner is not required to live in California.

The author of the law, Thomas Hannigan, did not predict this result 8 years ago. “I tried to do the right thing. Obviously, it had unintended consequences.

See Liam Dillon & Ben Poston, California Homeowners Get to Pass Low Property Taxes to Their Kids. It’s Proved Highly Profitable to an Elite Group, Los Angeles Times, August 17, 2018.

Common “Pot” Trusts: Why You Shouldn’t Treat Your Children Equally

If you have minor children, you most likely would want them to be provided for in case something terrible happens to you and your spouse.  How would you split your assets between them?

At first glance, your natural tendency is probably to respond, “equally, of course”.  For the most part, we love our children equally, and so logic dictates that they should receive equal amounts.

But consider this — Do you know for certain that you spend equal amounts on each child?  Or do you rely on faith that as extra-curricular activities, doctor visits, gifts, etc. come up throughout your kids’ lives, everything kind of washes out?  Most would answer yes to the latter and not the former question.

On the other hand, pure equality can be a harsh mistress.

Do you deny your son a doctor’s visit if he has already gone three more times than his sister in the last six months?  If you spent a little bit extra on your daughter’s birthday party, do you skip this year’s dental check-up?  If your son broke his arm and went to extensive physical therapy for several months, do you then send your daughter to a special acting camp to compensate?

Or do you simply dole out money for your children as the need arises?

The Common Pot Trust

The Pot Trust takes this concept of spending for your minor children as needed and applies it to your trustees.  Instead of your will or trust passing your estate into separate, equally funded trusts for each child, the whole “pot”, is combined into one trust that benefits all the children together until they all reach adulthood.

See Common “Pot” Trusts: Why You Shouldn’t Treat Your Children Equally, http://estateplanninginfoblog.com, July 26, 2018


Distribution Planning: Another Perspective on How to Distribute Assets

How to Leave Assets to Adult Children

When considering how to leave assets to your adult children, first decide how much you want each one to receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of your estate. For example, you may want to give more to a child who is a teacher than to one who has a successful business. Or you may want to compensate a child who has taken care of you during an illness or your later years.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. Well, no one said you have to give everything to your children. You may prefer to leave more to your grandchildren and future generations through a trust, and/or make a generous charitable contribution.

Next, decide how you want your children to receive their inheritances. You have several options from which to choose.

See estateplanning.com, How to Leave Assets to Adult Children, July 23, 2018


Estate Planning for Surviving Spouses: What to Do ASAP

As soon as you are able, you have some legal documents to review and plans to update to protect both you and your heirs.

After the death of a spouse, most of the attention for legal services is paid to administering the estate of the decedent. Often times, little time is spent focusing on the legal needs of the surviving spouse. See Barbara Shapiro, Estate Planning for Surviving Spouses, September 19, 2018.


Distribution Planning: Summary of Different Distribution Options

Trust Fund Options for Paying Adult Beneficiaries an Inheritance

When deciding who you want to inherit your estate after you die, aside from figuring out who will get what, you’ll need to determine how and when they’ll get it. For adult beneficiaries, there are three options for giving them their inheritance: outright, in stages, or in a discretionary lifetime trust.

See Julie Garber, Trust Fund Options for Paying Adult Beneficiaries an Inheritance, www.thebalance.com, July 23, 2018

Distribution Planning: Leaving Assets Outright To Adult Children

This part of the Distribution Planning series discusses the effect of leaving your assets outright to your adult children.


People understand why minor children and even young adults shouldn’t inherit property outright. Someone with more maturity and experience needs to manage the assets and make spending decisions. That’s why for minors and young adults, inheritances routinely are left in trusts at least until the youngsters are older.

Too often, however, people overlook the benefits of leaving assets in trust for adult children instead of having them inherit the property outright.

Consider the risks of leaving wealth outright even to grown children and these benefits of using inheritance trusts to hold bequests for them.

See Bob Carlson, Leaving Assets Outright to Adult Children, www.forbes.com/, 

How to Leave a Legacy When You Don’t Have Children

Many people either choose to not have children or have accepted the circumstances in their lives that do not allow children to be a part of them. A question on how to leave a lasting legacy remains for those that do not have immediate heirs. Ms. Malone Wright, founder of NotAMom.com who lives in Cleveland, noted that even if you have a child, you have no way to control where your child carries your legacy; it might not be a direction you would choose.

Many people try to better the greater good by donating money or by volunteering in their local communities. Others try to make lasting impressions through their careers. you don’t have to be rich, a genius or a world-renowned luminary to touch people’s lives for generations to come. Here are some ways to leave a lasting legacy when you don’t have genetic offspring:

  • Get it in writing.
  • Preserve your family history.
  • Support institutions you find meaningful.
  • Champion worthy causes.

See Anna Goldfarb, How to Leave a Legacy When You Don’t Have Children, New York Times, July 17, 2018.

Distribution Planning: Common “Pot” Trusts – Why You Shouldn’t Treat Your Children Equally

Estate planning is more than just planning to avoid probate. You can also develop a very specific plan for the distribution of your assets. In the series of blog posts entitled “Distribution Planning”, we will discuss the different options of distributing your assets and the pros/cons of each one.

The first part of this series discusses “Common Pot Trusts”.


The Common Pot Trust takes this concept of spending for your minor children as needed and applies it to your trustees.  Instead of your will or trust passing your estate into separate, equally funded trusts for each child, the whole “pot”, is combined into one trust that benefits all the children together until they all reach adulthood.

If both parents are tragically gone during their children’s minority, then the trustee (the person overseeing and dispensing money from the “pot”) is directed to spend as if he or she is like a surrogate parent – he or she spends money on the kids in the same way that the parents would if they were alive.

See Scott R. Zucker, Esq. , Common “Pot” Trusts – Why You Shouldn’t Treat Your Children Equally, estateplanninginfoblog.com, July 23, 2018.