The Journey: Trust in the trust to keep your estate out of probate
Q: I have a will designating my wife as beneficiary, or her two adult children should she predecease me. I want this protected from a challenge by my sister. How do I set my will up so she has no success with such an attempt? My sister and I have nothing in common — no debts, contracts, promises, friends or situations. Nothing, except unfortunate DNA.
A: State laws vary, but most don't give inheritance "standing," or priority, to siblings, said William Kirchick, a partner in the Boston office of law firm Bingham McCutchen LLP. Of course you should check your own state's situation, but you could also set up a funded revocable trust that specifically designates your assets according to your wishes, Kirchick said.
"You can't stop anyone from suing," but setting up a trust will keep your estate out of probate, among other benefits, he said.
Q: I am 89 and hold a Roth IRA. My wife died in 2013 at age 86 and at her death, she held a conventional IRA. It has reverted to me so that I now hold a conventional IRA and a Roth IRA. Each year before her death since the age of 70 1/2, my wife took the mandatory withdrawal by transferring the required amount to our joint brokerage account and, of course, paying the required income tax. Before the end of 2014, I must take the required mandatory withdrawal from the conventional IRA. May I transfer the mandatory withdrawal from my conventional IRA to my Roth IRA, pay the required income tax, and will this satisfy the mandatory withdrawal requirement?
A: You can't use required distributions to fund Roth individual retirement accounts, said Natalie Choate at law firm Nutter McClennen & Fish.
You didn't say whether the IRA is still an inherited IRA or if you rolled it into a traditional IRA of your own, but if you haven't rolled it over, that may be something to consider, Choate said.
That's because required distributions for someone your age would be significantly larger with an inherited IRA than with one in your name because of different withdrawal calculations used for the different accounts, Choate said.
A U.S. Supreme Court decision this summer is one more reason to make sure the account is in your name rather than an inherited IRA, Choate said. The case involved a nonspouse beneficiary and essentially ruled that inherited IRAs don't have the same creditor protections as regular IRAs do. Legal experts say the ruling could be the beginning of tighter restrictions even on spouse beneficiaries.
Q: I am 49 and have about $350,000 in my 401(k) with my previous employer, for whom I worked 13 years, ending in 2008. Should I continue to keep my 401(k) there or should I put it in an IRA? My new job also provides a 401(k), but the funds they offer are not as good as my previous company.
A: If the old 401(k) is truly in a top-notch company plan with better funds and lower costs than what you could find in the retail IRA market, there's nothing wrong with leaving a good thing alone. Are you sure that's the case, though? Check out both plans at brightscope.com, which publishes data on fees and fund selections. As for your current workplace, many financial advisers recommend funding a 401(k) plan at least enough to get any employer match, but you'll have to weigh that against negatives, such as high fees.
ABOUT THE WRITER
Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at firstname.lastname@example.org.
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