IRAs and Estate Planning

[Guest michaelmc148]

Can someone help me get a handle on some of the issues regarding IRA (and other tax deferred assets) and estate planning. About 1/2 of my uncle's estate is in IRAs (approx. $2.5 mil.) and from what I read, there are not a alot of good options to achieve the following: 1) pass as much wealth on to his heirs and 2) avoid as much tax as you can (both income and estate tax). These objectives are conflicting and it seems that it is difficult to achieve both was any reasonable amount of success.

I guess he can roll the IRA into his spouse's name where you grow assets tax deferred, but then have to pay higher estate tax while the heirs will inherit an income tax burden.

Or he could roll the IRA into some kind of foundation I guess which would avoid the taxes, but leave the heirs out in the cold.

Or I guess he could begin to tax distributions from the IRA (he is 61) over the next 10 years let's say and take the income tax hit over time and then gift these "after tax" assets to his heirs to remove them from his estate.

What are some of his options here? Thanks in advance for your thoughts.

[basumukherji]

It appears that your uncle with a $5M estate should seek serious professional estate planning help. Assuming that at age 61, he is in good health, I would suggest you look into establishing a life insurance trust to pay for the estate tax. At the same time adopt an yearly withdrawal schedule and start gifting to heirs using the $10000 per person yearly gift tax free allowance allowed by the Internal Revenue Code. Be aware that income tax paid from an inherited IRA can be somewhat offset against any estate tax paid for that IRA. This is known as IRD (Income with Respect to a Decedant) rule