Peter’s Story: A Case Study

Peter had a tragic childhood. His mother and he fled his birth country due to persecution. Eventually, he learned a second language and emigrated to the United States, where he became a teacher.

Since he was single and he saved money, his estate upon his death, was worth over $5,000,000. Since he had no living family remaining, he gifted his estate through his trust to a few charities.

The last year of his life was difficult for him due to illness. While he did have a trust prepared and he named a professional fiduciary as trustee, he was not ready to ask for help. When the investment companies sent him the paperwork, it remained in his office, incomplete.

The result?

Over $1,000,000 in assets were held in qualified accounts or were not transferred into his trust.

This resulted in a probate, even though he had a trust.  In addition, he named his trust as a beneficiary of his IRA accounts, rather than naming the charities as direct beneficiaries. These two choices significantly reduced the amount of the gift to his beneficiaries. This was not his intention, but merely an inability to deal with the flood of paperwork.

Lessons?

1. If you are feeling overwhelmed by the steps in handling your financial affairs, consider bringing your named Successor Trustee or Financial Power of Attorney into your situation. If you have chosen trusted professionals or knowledgeable family, they can help.
2. If you wish to give money to a charity, name the non-profit as your IRA beneficiary. This is one of the easiest ways to gift to a charity.
3. While most attorneys do not recommend naming your trust as the beneficiary of your IRA due to complex IRS rules, in some situations it can make sense. This is usually because you wish to retain some control over the IRA assets and prefer that your beneficiary receive the RMD rather than an outright gift.  Due to the potential tax implications, it is important to check with your attorney and even a tax advisor who understands your situation.