Not Following the IRS Stretch Out Rules Could Cost Your Children and Heirs Millions!!!


In this article, I'd like to discuss an often confusing topic. Unfortunately, many families that I work with fail to consider this type of planning as part of their estate plan. What I am referring to are the IRS Stretch Out Rules. If you don't consider the IRS Stretch Out Rules with your estate plan, you could be costing your children and heirs thousands, if not millions of dollars over the course of their lifetimes. 

The IRS Stretch Out Rules refer to tax consequences that can affect your children and heirs who inherit your IRA after your death. Typically, when you pass an IRA to your loved ones at death, whether that be your adult children or other heirs, they are typically given two options: 

(1) Withdraw the IRA over the course of their lifetime; or

(2) Withdraw and liquidate the full balance of the IRA within five years.

The problem is that many adult children who inherit a parent's IRA do not make the most beneficial tax decision. This isn't because the children are bad people, but many people who receive a windfall in the form of an inheritance see it as an opportunity to buy a car, invest in real estate, pursue an investment opportunity, or any number of other reasons. Then, before you know it, the inheritance is gone, and even worse, the adult children's tax consequences are severe.

One way to create a plan to protect your children from making poor tax decisions regarding your Inherited IRA, is through the establishment of an Accumulation Trust or a Conduit Trust. Both of these type of trusts have their unique circumstances and details. However, these type of IRA Trusts can set distribution standards from the Trust, and allow the IRA to continue to grow while protecting the retirement assets from creditors, divorce claims, lawsuits, and other predators. Leaving an IRA outright to your adult children or other heirs does not provide the same level of protection.

When I am counseling clients regarding their IRA and setting up a plan that will work for their family, I will almost always address IRA Trusts as a way to limit the income tax consequences for their adult children and other heirs, as well as provide the surviving family members with a level of asset protection. 

If you have questions regarding IRA Planning, please contact us and request a Free Copy of My Mini Report The Secrets to Making Your Clients IRA Millionaires! Also, before you hire any attorney, please request My Book - How To Select The Right Estate Attorney for Your Family and Creating a Plan That Will Work! This report is filled with great information that every family should discover before hiring any attorney to handle their estate planning, along with questions you should ask any estate attorney you meet with!

If you are ready to schedule an appointment, please contact us to schedule your Family Wealth Planning Transfer Session. 

As always, we are here to help!


Daniel A. Perry
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Focused on helping seniors, individuals with disabilities and small business owners make informed decisions.