Protecting Your Self-Directed IRA From Probate

Nothing is inevitable, they say, except death and taxes. But you can take some of the sting out of both death and taxes by properly planning for the distribution of your Self-Directed IRA and other IRA and retirement assets at your death, or the death of your spouse, if applicable – by protecting your assets from the costs and delays of the probate process.

What is probate? When an individual passes away, his or her assets normally transfer automatically to his or her surviving spouse, if any. If there is no spouse, they get swept up in a legal process called probate. Proper planning is the best way to protect Self-Directed IRA and other assets.

In probate, all the assets in your estate fall under the control of a bunch of court officials, plus the executor of the estate. However, courts won’t release the funds to the control of the executor to transfer to heirs until they have first paid their own probate fees, which can be tens of thousands of dollars on larger estates. They then contact federal, state and local tax officials and pay any taxes due. Then they contact other creditors and pay of all lenders, etc. Heirs will only receive what’s left after the long and expensive process of probate is complete.

What can you do?

First, name a named, individual beneficiary on all your IRA and Self-Directed IRA accounts. This allows the custodian to transfer the assets directly to the beneficiaries – your family and loved ones - bypassing probate. Don’t name your estate as your IRA beneficiary, or leave it blank, which accomplishes essentially the same thing: It routes all your assets in the Self-Directed IRA back into your estate, essentially throwing everything back into probate. Naming yourself or your estate as your beneficiary, or not naming a beneficiary at all, are among the most common estate planning mistakes we see.

Consider adding a beneficiary form to regular accounts.

Generally, retirement accounts, life insurance contracts and annuities all come with a beneficiary designation form as a standard, default document. You just have to keep it updated. In some states, however, you may be able to add a beneficiary form to taxable accounts, or accounts outside the retirement plan as well. Check with your tax advisor or an attorney knowledgeable about the law in your state, as well as with the relevant banker or broker/dealer firm. The title on the account may change to your name plus TOD, or “transfer on death” and your beneficiary’s name.

Strategic Gifting

If you don’t need to spend everything in your Self-Directed IRAs just to pay your living expenses, you may initiate a strategic gifting program. The more you can transfer to your family members and loved ones now, while you are still alive, the less will eventually have to pass through probate.

Current laws allow you to pass up to $14,000 tax free to each child or anyone else you like. Your spouse can also transfer a like amount, for a total of $28,000 per year, per individual. There’s also a lifetime gift tax exclusion of 10.9 million total. You can give that much away over your lifetime, without any federal tax liability.

American IRA specializes in providing third-party administrative services to those with unconventional assets in Self-Directed IRAs.

Our offices are in Asheville and Charlotte, North Carolina, but we can work with self0rected IRA owners all over the country.

For more information, call us today at 866-7500-IRA, or check out our extensive library of educational blog posts on our Website, www.americanira.com.

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