…(read more)

LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA

Inherited Individual Retirement Accounts (IRAs) and Third-Party Special Needs Trusts (SNTs) are two important financial tools that can have a significant impact on estate planning and the financial well-being of individuals and their families. Understanding how these tools work is crucial for anyone looking to plan for their future and ensure the financial security of their loved ones, especially those with special needs.

An Inherited IRA is a type of retirement account that is passed down to a beneficiary upon the death of the account holder. This account allows the beneficiary to continue benefiting from tax-advantaged growth and the potential to receive income in the form of required minimum distributions (RMDs). Unlike a regular IRA, an inherited IRA has different rules regarding withdrawals and taxation.

When an individual with special needs inherits an IRA, it is important to consider the impact it may have on their eligibility for means-tested government benefits, such as Supplemental Security Income (SSI) and Medicaid. These benefits are often vital for individuals with disabilities, providing them with necessary healthcare and income support.

To maintain eligibility for these benefits, it is crucial to set up a Third-Party Special Needs Trust (SNT) and designate the inherited IRA as an asset of the trust. A Third-Party SNT is a legal arrangement that allows a person with special needs to receive supplemental resources without jeopardizing their eligibility for government benefits. The trust is managed by a trustee who has the authority to distribute funds for the benefit of the individual with special needs.

By designating the inherited IRA as an asset of the Third-Party SNT, the funds within the IRA can be utilized for the beneficiary’s benefit while still preserving their eligibility for government benefits. This allows for the optimal use of the inherited IRA, ensuring the financial well-being of the individual with special needs.

It is important to note that the establishment and management of a Third-Party SNT require careful consideration and adherence to complex legal requirements. Seeking the assistance of an experienced estate planning attorney is highly recommended to navigate the intricacies of setting up and managing this type of trust.

Additionally, the Secure Act, passed in December 2019, has brought about significant changes to the rules surrounding inherited IRAs. Prior to this legislation, beneficiaries of inherited IRAs had the option to stretch out distributions over their lifetime, allowing for continued tax-deferred growth. However, the Secure Act now requires most non-spouse beneficiaries to withdraw all funds within 10 years of the original account holder’s death.

This change has implications for individuals with special needs who rely on inherited IRAs for supplemental income. The compressed distribution timeline may increase taxable income and potentially affect their eligibility for means-tested benefits. Therefore, it is even more crucial for individuals with special needs to consult with an attorney and evaluate the most effective strategies for managing the inherited IRA within the Third-Party SNT, considering the new rules under the Secure Act.

In conclusion, Inherited IRAs and Third-Party SNTs play crucial roles in estate planning for individuals with special needs. These financial tools allow for the preservation of government benefits while maximizing the use of inherited retirement funds. Understanding the intricate rules and seeking appropriate professional advice is essential to ensure the long-term financial security of individuals with special needs and their families.