Modern Estate Planning Blog

One of the important things to discuss with your Fair Oaks estate planning lawyer is the topic of your IRA. Because estate planning lawyers work so extensively with these plans, they can usually offer insight into how best to utilize them. For many people, the IRA will be left to their beneficiaries, and if done right, you can significantly increase the amount of money the beneficiary will receive. For that reason, your Fair Oaks estate planning lawyer might recommend a “Stretch IRA.”

How a Stretch IRA Works

The “stretch” part of the IRA refers to how it pays out to your beneficiaries. The math can get a little complicated, but an estate planning lawyer should be able to walk you through how it works. Basically, instead of getting a lump sum upon your death, the beneficiary takes payments over a long period of time. So, if you’ve got a $100,000 IRA, you can choose for the beneficiary to receive it all at once or to spread it out. If that doesn’t necessarily sound helpful, keep reading.

As the beneficiary is taking out small amounts, the remainder is still tax-deferred and growing. Over the course of 50 years, the beneficiary could potentially receive payments totaling more than $1 million! If a grandchild is listed as a beneficiary of a Stretch IRA, the payouts over a lifetime can add up even more. Estate planning lawyers are helping clients put together plans that utilize this process to leave behind far more than they would have otherwise.

Making It Happen

The fact of the matter is that many beneficiaries don’t take the stretch option. The vast majority of IRAs are cashed out within the first year. If you’re really looking to encourage your beneficiaries to get the most from your gift, you may want to discuss setting up a trust with your Fair Oaks estate planning lawyer. These types of trusts go by several different names, including but not limited to:

• IRA Stretch Trust
• Retirement Benefits Trust
• Stand Alone IRA Trust

While it may be less exciting to receive payments over a long period of time than to get a large lump sum all at once, the stretch option allows for the beneficiary to receive a significantly larger amount of money that can help them repeatedly over the course of a lifetime, rather than just once.

This type of trust and planning is not limited to funds from IRAs, funds from 401(k)s, 403(b)s and other qualified retirement plans are also eligible.

An IRA Stretch Trust might not be for everyone, but it is definitely one of the options that a good Fair Oaks lawyer will be able to discuss with you to help you make the appropriate choices for your estate.