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The
Ideal Solution: "Lange's Cascading Beneficiaries Plan"
with Disclaimer Options
by James
Lange, CPA, JD
The new IRS regulations allow IRAs
and retirement plans to grow tax-deferred for longer than ever before—you
can take advantage of this extended tax deferral while you are alive,
and your family can take advantage of tax deferral after
you die. With proper planning you can provide your surviving spouse
with the ultimate flexibility to make decisions, after the death
of the IRA owner, armed with the full knowledge of his or her financial
circumstances.
Fortunately, this ideal solution will
work for many IRA owners.
In developing this new concept, I
borrowed heavily from our well-established “disclaimer”
strategy that we have been applying to IRA beneficiary designations
for the past seven years.
Our current work is an adaptation of these time proven concepts
to the new tax law. Using a combination of legal, income tax saving,
and accounting principles, we have developed what we think is the
ideal solution for naming beneficiaries to IRAs and/or Retirement
plans.
It is critical to understand that it
is the beneficiary designations of your IRA and/or retirement plan
and not your will or living trust that governs the disposition of
your retirement assets at your death.
When properly in place, our “cascading beneficiary” document
defines and controls the beneficiary designation of an IRA and/or
retirement plan.
You
should consider our innovative disclaimer cascading beneficiary
method if:
- Your
primary goal of estate planning is to protect your spouse.
- You
want flexibility in your estate plan.
- You
are interested in saving estate taxes and deferring income taxes
for your family after you die.
- You
have complete trust in your spouse and feel confident your spouse
would never disinherit your children.
- The
combined total of your IRAs, Roth IRAs and retirement plans is
$500,000 or more.
- You
and your spouse have the same children.
- Your
spouse is a U.S. citizen.
- You
would like a plan that doesn't have to be rewritten if estate
taxes are reduced or repealed.
- You
prefer to avoid probate with your IRA and retirement plan assets.
- You
don't want to have an 18 or 21 year-old child or grandchild have
access to an enormous inherited IRA without any restrictions.
- You
would like the ability to name a trustee now rather than leaving
the decision to a bank, an attorney, or a court.
You should not use this strategy
under the following circumstances:
- Second
marriages when one spouse has children from a prior marriage.
- Marriages
when there is insufficient trust between spouses.
- Your
children or grandchildren have profound disabilities or special
needs.
- A
beneficiary has a serious drug or alcohol problem that might impair
their judgment or use of funds.
The beauty of the system is that it
gives the surviving spouse virtually complete control over the disposition
of the IRA or retirement plan assets after the death of the IRA
owner.
Please
click here for an extended discussion of how the plan works
What
Others Say About “Lange's Cascading Beneficiaries Plan:”
The following quotation is from Jane
Bryant Quinn's syndicated newspaper column, which included a reference
to my idea of cascading beneficiaries.
“For
families in which the heirs won't need the IRA right away.
When you die, your spouse could
refuse to accept (“disclaim”) all or part of the IRA.
That money could go to a trust that pays your spouse a
lifetime income and then passes to the children, Lange says.
Alternatively, your spouse could
disclaim the IRA proceeds directly to your children, who could
either take the money or disclaim to your grandchildren.
They would still have to take their minimum distributions,
but the bulk of the IRA could be tax-deferred for generations.”
Please
click here to view the entire article.
Benefits of
Lange's Cascading Beneficiary Strategy
This strategy allows the surviving
spouse to make important decisions regarding family money with “current”
information, i.e., finances at the time of death, the future financial
picture, tax laws, family needs, etc. The “current” information
will be more accurate than anything we could possibly predict in
advance.
With help from family and professionals,
the surviving spouse could make an informed decision within nine
months of the IRA owner's death. Those decisions could potentially:
- Significantly
reduce estate tax at the second death.
- Allow
a child or grandchild to keep money either outright or in trust
that will have the benefit of tax-deferred (or in the case of
the Roth IRA tax-free) growth for their whole lives subject to
their small minimum required distributions.
- The
children (on an individual basis) could decide to disclaim all
or a part of their interest to their children, the IRA owner's
grandchildren.
- Encourage
or in some cases force heirs to take advantage of the “stretch”
IRA.
Our Services For Implementing “Lange's
Cascading Beneficiary Plan” Include:
We offer a free initial consultation
with James Lange, CPA, JD to assess whether or not you are a good
candidate for the plan.
If you choose to have our office draft
your plan, you can expect the following services.
A conference with a qualified estate
attorney who will:
- Describe
your options.
- Present
our recommendations.
- Draft
your plan.
- Guide
you through the mechanics of changing your IRA or retirement plan
beneficiary forms.
- Provide
a “plain English” written explanation of the document that acts
as the beneficiary designations of your retirement plan.
- Provide
a “primer” for the surviving spouse describing what he or she
should do at the death of the IRA owner.
The unique attributes of this strategy
is that it will work in practically all states and the final legal
document stands independent of your will or living trust.
Ideally, there would be a well-coordinated estate plan that
incorporates all your assets, but the described beneficiary designation
will blend seamlessly with the vast majority of wills and living
trusts including:
- I
love you wills or living trusts (where the couple leaves each
other everything and at the second death, it goes to the children
equally).
- Wills
and/or living trusts that include a “B” or unified credit shelter
trust that says income to spouse, remainder to children after
spouse dies. Or similar
wills and trusts that also incorporate “disclaimer” language.
Restrictions:
Many retirement plans, such as Westinghouse's
401(k) plan, will not allow a non-spouse to “stretch” an IRA after
the death of the retirement plan owner.
Solution: Take the money in the restricted
401 (k) or 403(b) or 457 plan or other qualified plan and roll into
an IRA that will allow a “stretch” after the death of the IRA owner.
A few smaller IRA providers (more likely
local banks and credit unions) will have restrictions that will
limit the heirs' ability to take advantage of all the features in
the plan. Solution: Encourage them to change their policies
or consider taking your money elsewhere.
Please call or
e-mail for more information.
James
Lange & Associates
2200 Murray Avenue
Pittsburgh, PA 15217
1-800-387-1129
412-521-2732
admin@faculty-advisor.com
Our office is prepared to complete
this type of work via phone, fax, email or through personal contact.
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