Roth IRA Inheritance Planning For Grandchildren and Your Utah estate Plan

I have a Roth IRA that I would like used for my great-grandchildren’s education. Can it be inherited by minors or a trust for their benefit?

IRAs are not just about retirement planning. No, they also are important estate planning tools. This is especially true when it comes to Roth IRAs.

One specific application for Roth IRAs is in the context of inheritance planning for grandchildren. Unlike “regular IRAs,” there will be no future “income taxation” on withdrawals from Roth IRAs. MarketWatch recently explored this issue in a Q&A titled “How to leave your Roth IRA to a minor.”

Is it possible to leave a Roth IRA to grandchildren for educational purposes or, failing that, to a trust for their benefit? The short answer: yes. The Roth IRA (or other IRA) can be left as part of the inheritance simply by naming one or more individuals as the beneficiary or beneficiaries under the plan. In the case of the Roth IRA, you can name a trust as a beneficiary, thereby allowing a single IRA to either work overtime for a host of beneficiaries or to more carefully manage it. The regular IRA present a different problem when dealing with naming a trust as beneficiary.  I have explained that problem in an earlier post regarding conduit trusts.

Of course there is a long answer to this question, too. Naming a minor as a direct beneficiary to a Roth IRA account will require a legal guardian, which may be a court-appointed role. Problem: the legal guardian appointed may not be the person you would have selected. Moreover, the IRA will not be skirting the court system as you may have intended by passing free of the courthouse.

Arguably, naming the trust as beneficiary does require the expense and thoughtfulness of establishing a trust, but the benefits typically far exceed getting caught in the legal red tape of the probate court.

Essentially, Roth IRAs are unique assets and giving to minors always involves a bit of a challenge in and of itself. However, since Roth IRAs are some of the most commonly owned assets, it makes good sense to plan for their efficient administration after you are gone.

So, how does your Roth IRA (or other IRA) currently fit into your estate plan?

Reference: MarketWatch (September 20, 2013) “How to leave your Roth IRA to a minor“