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A Short Story of Jack, The Beanstalk and Survivor IRAs.

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Once upon a time, Jack discovered that when he and his wife Jackie were both gone, they could leave what was left of the Beanstalk1 to their child2 and grandchildren3 in an incredibly neat, tax-saving way.

They filled out the papers4 so a Beanstalk Trust would be created when they died. Then they lived happily ever after.

When they both died, there was no Fee Fi Fo Fum. The Big Bad Giant5 got no income taxes at all on the Beanstalk.

Instead:

$500,000 of the Beanstalk Trust continued for the benefit of Jack and Jackie’s child. She got payments totaling almost $1.5 million over her lifetime.6 And she paid no income tax on the rolled-over assets except when a distribution was made to her. (This had to be at least annually, though payments could be made more often, too.)

The other $500,000 of Beanstalk went to a trust for the grandchildren. They received over $4 million from it over their lifetimes.

And again, the Giant only got income taxes when Beanstalk distributions went to the grandchildren.

So the children and grandchildren were financially happy ever after, too, since Jack and Jackie knew about Beanstalk Trusts.

If you don’t know Jack, or his wife, or about these Trusts for your IRAs, etc., we’ll be glad to explain and give you the numbers for you and yours. We’ll also show you how you can give a child or grandchild the option to close down his or her Beanstalk Trust after deciding they don’t want the tax benefit any longer; a beneficiary doesn’t have to be a prisoner and can shut down a Beanstalk Trust.7

 

Footnotes.

1 Their IRAs, 401ks, and other qualified plan balances.

2 Their child is 45 in this story (but it could be more than one child and any age).

3 The grandchildren in this story are 17 and 12.

4 Very necessary. You cannot do a Rollover IRA Trust unless the right forms are filled out in exactly the right way. You cannot make your children the contingent beneficiaries if you want to make sure a Trust happens with the benefits we’re describing.

5 I.R.S.

6 This presumes they were earning 5% annually.

7 Not always a good idea. They’ll have to pay the income tax on all that’s been accumulating and growing tax-free. But you can set a minimum age so this can’t happen until an age when you guess they’ll be financially mature. (And yes, you can change this age from time to time.)

 

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