albany estate planning lawyer

MONEY LEFT IN IRA AT TIME OF PASSING NOT SUBJECT TO NORMAL IRA RULES

This blog previously discussed the Supreme Court case of Clark v. Rameker and the legal implications of money remaining in an IRA at death, that is in turn left to the heirs of an estate. Putting aside the potential tax implications, if any, with passing on an account with an easily ascertainable value, passing on an IRA can strip the IRA of its legal protections, such keeping it from the reach of judgment creditors. It should be noted that this discussion does not include leaving money in an IRA to a spouse, which the law allows special treatment for, by allowing the spouse to roll it over into a regular IRA account upon the death of the owner of the IRA and treat it as if it were his/her own IRA.

With respect to all other types of heirs, with an inherited IRA, the owner can withdraw from the IRA prior to reaching the age of 59 and one half years old. If the IRA is not inherited the owner would normally face a ten percent penalty if did this. In addition, the owner of an inherited IRA must withdraw the entire balance within five years of the original owner’s passing or take annual minimum distributions, allowing the bulk of the money to sit in the account and grow tax free. The money is only taxed to the recipient upon withdrawal. Most importantly, the owner cannot add funds to the IRA account. To maintain certain protections, such as keeping the money in the IRA out of the hands of judgment creditors and to minimize the tax liability, it may be wise for the testator to leave the money in the IRA to an IRA trust or conduit trust.

On June 24, 2015 a trial Court in California invalidated a California law as unconstitutional, which created a default surrogate decision maker when that individual is mentally incapacitated and does not have a family member, or anyone else for that matter, to make key decisions for them. The law and the issues addressed are not limited to California. Even though by definition, the law deals with individuals with no proxy decision maker, that does not mean someone did not exist in the past or could not step up to become one. Proxy decision makers pass away themselves, they move or simply just fade away and no longer attend to their responsibilities. New York law deals with these issues in a rather collaborative way. In 2010, New York enacted the New York Family Health Care Decisions Act, which creates a decision ladder for medical professionals who need to know with whom to check with for certain critical decisions. It was designed to avoid the parade of horribles that the California law dealt with. Certainly, no one wants a loved one or relative, even a distant relative, to have to rely on these provisions; they are used as a last resort.

DETERMINATION OF INCAPACITY

In the absence of a health care proxy, The New York Family Health Care Decisions Act begins to shape decisions, for all intents and purposes, at the time of the determination of incapacity.

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MONEY IN IRA MAY BE LEFT DIRECTLY TO HEIRS OR TO TRUSTS

LACKING IN MENTAL CAPACITY AND FAMILY, WHO DECIDES