Recently there has been an uptrend in passing individual retirement accounts also knew his IRAs to spouses or children directly. Most clients are under the impression that all that is needed is the place that beneficiaries on the on the account and the transaction would be complete. In doing so is recommended that the client consult with their attorney and/or financial planner to make sure that they’re
doing this properly. Firstly the issue for the client is whether to place the beneficiary as a joint owner or as a beneficiary through a transfer on death (TOD) account. If a beneficiary is added jointly that beneficiary becomes a joint owner. In the event that the beneficiary is involved in a lawsuit divorce for example those monies may then become attachable. Additionally adding a beneficiary as a joint owner could also destroy capital gains basis step up on asset that appreciates such as an IRA. If a beneficiary is added by TOD the beneficiary is not considered a joint owner and is insulated from any legal obligations. The additional benefit of transferring by a TOD account is that the beneficiary gets stepped-up basis for the value of the account at the time of the client’s demise. It is also important to note that you should meet with your financial planner to ensure that any of the TOD accounts can be rolled over to the beneficiaries IRA so they do not have to liquidate the account but can make their required minimum distributions over their lifetime. Is extremely important to review it required minimum distributions the time of the demise of the owner so that no penalties or us assessed for failing to make the minimum distribution. The penalty can be as much as 50% on the amount that should have been withdrawn during that particular year.