Halloween Candy Linked to Blown Inheritance … Somewhat

The longer I am a part of this community, the more I appreciate all it has to offer. Last weekend was my first Halloween in Sierra Madre. My kids are 6 and 4; perfect trick-or-treating age. And let me tell you, they had a blast! I love how Sierra Madre does Halloween. It was an amazing blend of cooperation between government, businesses, and residents. And as a parent, trick or treating in Sierra Madre with my kids gave me the opportunity to watch them enjoy themselves thoroughly, encourage them to be polite and use their manners, and talk to them about the down side of overindulging in candy. All in all, a win-win-win situation!

Speaking with my children about overindulgence got me thinking about my hopes and fears for them when my wife and I pass on our inheritance to them. How did I make that leap? Well, statistics show that most individuals who inherit IRAs completely deplete them within less than two years. My wife and I, and I imagine most of you, would prefer those assets not only benefit our children, but future generations as well. I don’t want my kids viewing their inheritance as “found money” to be squandered away and blown. Yet study after study says this is what’s most likely to happen.

The good news is, there’s an estate planning tool to keep beneficiaries from overindulging and wasting that type of inheritance. A trusteed IRA is like a traditional IRA but with some of the advantages of a trust. They are designed to provide a long-term distribution plan for withdrawals to benefit more than just one generation of beneficiaries. Trusteed IRAs are less expensive than setting up a trust, though generally a bit more expensive to administer than a traditional IRA.

Trusteed IRAs are a wonderful tool for those who want to control how their IRA assets are distributed after they’re gone. With traditional inherited IRAs, the beneficiary has full say over what happens to the IRA assets he or she inherits. And since most elect to completely deplete an inherited IRA, future generations will likely never benefit.

A trusteed IRA allows the original owner to dictate how withdrawals can be made. For example, by allowing only the minimum required distribution that the IRS requires heirs to take every year, you can stretch out your IRA over multiple generations since investments grow tax-deferred (traditional IRA) or tax-free (Roth IRA).

I don’t want my kids to be one of the statistics. I hope they respect what my wife and I are leaving them and work to grow those assets so they can pass an inheritance on to their own children. If you feel the same, let’s get together and talk.

To you family’s health, wealth, and happiness,