When a Loved One Dies: A Successor Trustee’s Checklist

When a loved one dies, it is an emotional time accompanied by confusion on what happens next. If you are named as the successor trustee, you likely haven’t had any experience dealing with the steps you need to take in settling your loved one’s Living Trust. If you are the Successor Trustee – or need to figure out who is – this simple guide provides a few steps you need to follow. Getting support from an attorney with experience in Trust Administration enables the process to be implemented smoothly and efficiently.

Step 1: Inventory

The first step in settling your loved one’s Living Trust is to locate all the decedent’s original estate planning documents, Pour-Over-Will, and other important papers.

If your loved one has left any written funeral, cremation, burial, or memorial instructions, store them in a safe place until you meet with your trust attorney.

Part of the inventory process is to obtain information about your loved one’s assets, including bank and brokerage statements, stock and bond certificates, life insurance policies, corporate records, car and boat titles, and deeds for real estate. You will also need information about the decedent’s debts, including utility bills, credit card bills, mortgages, personal loans, medical bills, and the funeral bill.

Step 2: Review the Provisions of the Living Trust

After you locate the important documents, you need to read the Living Trust to determine the provisions. Note the following as you read it over:

• Are there special instructions regarding the decedent’s funeral, cremation, or burial?
• Who gets the decedent’s personal effects?
• Who gets any specific bequests?
• Who gets the decedent’s residuary trust?
• What was the date and location where the trust agreement was signed?
• Who signed the trust as witnesses and Notary Public?

Step 3: Make a List

In addition to reading the Living Trust and summarizing what it says, review your loved one’s financial documents and make a list of what he or she owned and owed, how each asset is titled (in the name of the trust, in the decedent’s individual name, as tenants in common, or in joint names with someone else), and–for assets and debts that have a statement–the value of the asset or debt as listed on the statement and the date of the statement. In addition, the decedent’s prior three years of income tax returns should be located and set aside.

Step 4: Meet With a Trust Attorney

You do not have to go through this process of settled your loved one’s estate alone, or subject yourself to personal financial liability as the successor trustee. You can work with a Trust Attorney to: determine the accurate value of the estate; resolve any outstanding debts and expenses; minimize estate taxes; administer trusts in conjunction with your family’s existing advisors and fiduciaries; and distribute assets to the proper beneficiaries as quickly and efficiently as possible.

If the estate and trust assets are improperly accounted for or in violation of California law, the executor and/or trustee can be held personally liable. Strategies and tools to minimize taxes may be overlooked, and there could be confusion over which beneficiaries are entitled to specific assets. All of this can lead to unnecessary expense, costly disputes, litigation, family infighting, and other financial and interpersonal problems. This is where a Trust Attorney can be of tremendous help to you and minimize your risk.

Step 5: Value the Assets

Once you’ve met with a trust attorney, the next step in settling a trust is to establish date of death values for all your loved one’s assets.

All financial institutions where the decedent’s assets are located must be contacted to obtain the date of death values. For assets including real estate, personal effects including jewelry, artwork, collectibles, and closely held businesses, they will need to be appraised by a professional appraiser.

Note that the value of all of the decedent’s assets will need to be established, including those passing outside of the trust, in order to determine if any estate taxes and/or inheritance taxes will be owed. Assets that can pass outside of the trust may include life insurance, IRAs, 401(k)s and annuities with named beneficiaries.

Step 6: Pay Bills

Once the date of death values have been determined for all of your loved one’s assets, the next step in settling the Living Trust is to pay your loved one’s final bills and ongoing expenses related to administering the trust. This is also the time that you, as the Successor Trustee, will need to evaluate whether trust assets, such as real estate or a business, should be sold. It is your job as a successor Trustee to figure out what bills are owed at the time of death, determine if the bills are legitimate, and then pay the bills. You will also be responsible for paying the ongoing expenses of administering the trust, such as legal fees, any accounting fees, utilities, insurance premiums, mortgage payments, and homeowner’s or condominium association fees.

Step 7: Pay the Taxes

Once you have paid the final bills and have the ongoing trust expenses under control, the next step in settling the trust is to pay any income taxes and death taxes that may be due. No bills should be paid to anyone until you are certain you have enough money to pay the taxes.

Aside from filing the decedent’s final income tax return, if the estate earns income during the course of administration, then the successor Trustee will need to prepare and file all required federal estate income tax returns as well as any required state estate income tax returns.

Step 8: Distribute

One of the last steps is to distribute trust income or property to trust beneficiaries according to terms of the trust agreement. You will need to complete transfer deeds and other change of title documentation. For information on how to write a final distribution letter to beneficiaries you should contact a Trust Attorney.

Handling an estate is a tremendous responsibility, time-consuming, and involves a lot of tasks. This is only a brief Successor Trustee checklist and there are more duties that need to be done. If you need help walking you through the process, consult with an Estate or Trust Attorney for guidance. CunninghamLegal has more than 20 years of experience handling the intricacies of Trusts, and we would love to help you.

The Living Trust, Durable Power of Attorney, and the Living Will



For most of my clients, at the center of their estate plan sits a document known as a “living trust.” Sometimes, attorneys will create separate living trusts for spouses, and sometimes joint trusts, depending on their circumstances and state of residence. This type of trust is called “living,” because it goes into effect and protects you even while you are alive. It also lives on past your own death, and in some cases, beyond the death of your immediate heirs. Think of it as a “super will.”

A living trust is a legally defined “bucket” into which you place certain kinds of assets so that you and your “successor trustees” have control over those assets. A living trust anticipates your incapacity and death and puts into place your long-term wishes. A living trust is not a legal fiction, but a well-recognized mechanism in an American society that has proven itself time after time to be the best way to plan your estate and protect your legacy for the people and causes you care about.

During your lifetime, you have complete control over this bucket. But, when you become incapacitated or die, a living trust can be easily handed to the next generation.

We’ll learn a lot more about living trusts as we go along. For now, you should simply know that every living trust is controlled by a trustee, and that trustee will probably be you while you are alive. It also has a beneficiary, and again, that beneficiary is probably you (or you and your spouse) while you live. When you die, the trustees and beneficiaries are updated in an orderly fashion, and the trust moves forward in time without the need for courts.

Most people have heard of living trusts. But in this book, you will find out what you don’t know you don’t know about them, and become empowered to build out your own correctly.


Other crucial documents in an estate plan include “durable powers of attorney.” Those powers that pertain to property say, “If I get sick, such-and-such persons have a continuing (durable) power to take care of things that aren’t in my trust bucket. This person can collect a registered letter from the post office on my behalf, pay my bills, and choose a nursing home for me. This other person can make decisions for my business and my financial holdings. This third person can deal with my IRA, 401(k), 403(b), digital assets, Facebook page, Twitter feed, blog, Instagram, Dropbox, and other social media accounts.”

More documents grant advance healthcare directives and “durable powers of attorney for healthcare decisions” when you are unable to make those decisions for yourself. Should the doctor try that new operation? Continue chemotherapy? These documents can have different names in different states, like “advanced healthcare directive” or “physician’s directive.”

Scary subjects? Maybe. But again, if you don’t decide who to entrust with these decisions, someone else will. Why? Because the decisions will have to be made, even if you are just out of action for a few hours on the operating table.


Most people are familiar with the concept of a “living will” (not to be confused with a “living trust”). A living will states your desires in case of truly extreme medical situations. As with the other documents, your attorney can discuss specific issues with you in detail. Think of a living will as a permission slip that you give your loved ones to let you go when it’s your time. But, you may want to say a lot more than, “If I’m a goner, pull the plug.”

If you make sure your living will has a way of getting into the right hands at the right time, its instructions will be followed by whoever you give a healthcare power of attorney, as well as by your doctors, even if you cannot communicate with them.

Not All Attorneys are Created Equal – Certifications Matter

You probably aren’t surprised to learn that all attorneys are not created equal, which makes trying to find the right one an important, yet hard, decision.

There are two kinds of lawyers in this country: general purpose and special purpose. If you live in a big city or urban area, you won’t have any trouble finding someone who focuses on estate planning. If you live in a rural setting, it may be tough. Why? Because in a rural setting, attorneys have to provide general services just to make a living.

Some larger states also provide a “certified specialist” certification program. In California for example, I am a certified specialist in estate planning, trust, and probate law. It’s a rigorous process to study for, test, and obtain the designation, and having that certificate hanging on the wall of my office means a great deal.

The State Bar of California developed this “certified specialist” program so that it is easier for you to know that you are hiring someone who is an expert in their field. An attorney who is certified by the California State Bar as an Estate Planning, Trust & Probate Law Specialist must have:

  • Taken and passed a comprehensive full-day written examination in estate planning, trust, and probate law administered by the State Bar Board of Legal Specialization
  • Demonstrated a high level of expertise and requisite number of years of experience in estate planning, trust, and probate law
  • Fulfilled mandated ongoing education requirements in estate planning, trust, and probate law
  • Been favorably evaluated by other attorneys and judges familiar with his or her estate planning, trust, and probate work.

In this state, less than half of 1 percent (or one in 200) of lawyers are certified specialists in my chosen area of specialty. For your purposes, it means that the State Bar has given that attorney an extra stamp of approval so that you know you are working with someone who truly knows the intricacies of the law. We at CunninghamLegal are unique in that I am not the only one with this designation; our president Jim Cunningham and lead attorney Ed Goodson are as well, and we have additional attorneys beginning the long and arduous process soon.

As you think about caring for your family for generations to come, consider choosing a firm that will understand all the complex issues and nuances associated with protecting your assets and administering your trust.


Preston A. Marx III, Esq,

Lead Attorney – Trust Administration

Certified Specialist – Estate Planning, Trust & Probate Law

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Long-Term Care

Understanding Long-Term Care

Addressing the potential threat of long-term care expenses may be one of the biggest financial challenges for individuals who are developing a retirement strategy.The U.S. Department of Health and Human Services estimates that 70% of people over age 65 can expect to need long-term care services at some point in their lives.1 So understanding the various types of long-term care services—and what those services may cost—is critical as you consider your retirement approach.What Is Long-Term Care?Long-term care is not a single activity. It refers to a variety of medical and non–medical services needed by those who have a chronic illness or disability—most commonly associated with aging.

Long-term care can include everything from assistance with activities of daily living—help dressing, bathing, using the bathroom, or even driving to the store—to more intensive therapeutic and medical care requiring the services of skilled medical personnel.

Long-term care may be provided at home, at a community center, in an assisted living facility, or in a skilled nursing home. And long-term care is not exclusively for the elderly; it is possible to need long-term care at any age.

How Much Does Long-Term Care Cost?

Fast Fact: Getting Care Now. Some 1.4 million adults live in skilled nursing facilities. Another 4.8 million remain in their own homes but get help with personal care from other people.
Sources: CDC, 2015. (Data from 2013 report is the latest available.)

Long–term care costs vary state–by–state, and region–by–region. The national average for care in a skilled care facility (single occupancy in a nursing home) is $91,250 a year. The national average for care in an assisted living center (single occupancy) is $43,200 a year. Home health aides cost a median $20 per hour, but that rate may increase when a licensed nurse is required.2

What Are the Payment Options?

Often, long-term care is provided by family and friends. Providing care can be a burden, however, and the need for assistance tends to increase with age.4

Individuals who would rather not burden their family and friends have two main options for covering the cost of long-term care: they can choose to self-insure or they can purchase long-term care insurance.

Many self-insure by default—simply because they haven’t made other arrangements. Those who self-insure may depend on personal savings and investments to fund any long-term care needs. The other approach is to consider purchasing long-term care insurance, which can cover all levels of care, from skilled care to custodial care to in-home assistance.

When it comes to addressing your long-term care needs, many look to select a strategy that may help them protect assets, preserve dignity, and maintain independence. If those concepts are important to you, consider your approach for long-term care.

The Best-Laid Plans

Default Choice or Best Approach?Source: U.S. News and World Report, November 13, 2015

1. U.S. Department of Health and Human Services, 2015
2. Genworth 2015 Cost of Care Survey

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2018 FMG Suite.

  tel: 805.312.7200


Source: Ascent Wealth Management, a financial services partner. https://myascentwealth.com/

Leaving a Legacy for Your Disabled Child

 Your Children with Disabilities Will Become Ineligible for Benefits…

Unless You Act!

Parents of children with mental or physical disabilities face a variety of challenges in ensuring their children can successfully navigate life with and without them. Because people with disabilities are living longer due to advances in healthcare and other enabling strategies, they are increasingly outliving their parents. This necessitates that planning for their future care should begin as early as possible, especially with respect to estate planning. In most instances, leaving even a moderate-sized inheritance outright to a loved one with special needs will result in that person becoming ineligible to receive government benefits such as Supplemental Security Income (SSI) or Medicaid medical coverage. Enter the Special Needs Trust. Because the assets are controlled by the trust rather than the child, the child may benefit from the assets in their trust without losing eligibility for their deserved government benefits.

Understanding a Special Needs Trust

The future of children with a disability is less stable than those without, and they may be looking at a future of lifelong help. Because many of these individuals may not hold a job that gives them access to health insurance, coverage under Medicaid is critical when they are no longer covered by their parents. Medicaid is only available to people who have very limited income and resources. Hence, an inheritance leaving money directly to the individual will disqualify them from Medicaid.

With a Special Needs Trust, the assets are placed in trust for the benefit of the special needs beneficiary. This person doesn’t have control over the trust funds—they are under the control of the trustee the parents chose. Because of this structure, the funds are not viewed as a resource of the beneficiary and can therefore be set aside to pay for other expenses besides healthcare, food, clothing, and shelter. Examples of qualifying expenditures out of the trust are a motorized wheelchair or specially-equipped van, household furnishings, educational pursuits, or even some entertainment-oriented purchases.

A Special Needs Trust is organized like other trusts in that there is a settlor (or grantor) who creates the trust, a beneficiary (in this case the person with special needs), and a trustee who is responsible for managing the money for the person with special needs. You should consider choosing someone who really understands the needs of your child and who you can trust wholeheartedly.

The Trustee’s responsibilities include:

  • Manage and invest trust funds in accordance with the terms of the trust document and state law
  • Spend trust assets only for the beneficiary
  • Understand the SSI and Medicaid laws to not run afoul of the government benefits
  • Keep careful records of all spending
  • File federal and state trust tax returns
  • Decide how to use trust funds to meet the beneficiary’s ongoing needs

Taking The Right Steps

A Special Needs Trust has complexities, so be sure to partner with an estate planning attorney who understands the nuances of setting up the trust properly and can educate the trustee as to their responsibilities. If you have a beneficiary of ANY AGE with special needs, you should consider a Special Needs Trust. CunninghamLegal has certified specialists in estate planning, trust and probate law who will listen to your unique needs and put a plan in place that makes sense for you and your family.


Jeffrey S. Rosen, Attorney at Law



2700 E. Foothill Boulevard
Suite 306
Pasadena, CA 91107






Is an AB Trust Still Effective?

Is the AB Trust Still Part of Your Estate Plan? Should It Be?

An AB trust is a joint trust commonly created by a married couple to minimize estate taxes prior to the considerable increase in federal estate tax exemption. This trust is funded with assets of each spouse and divides into two separate trusts (Trust A and Trust B) upon the death of the first spouse.

The AB trust plan results in the B Trust, or bypass trust, being funded upon the death of the first spouse with an amount equal to the applicable estate tax exclusion amount. Any remaining estate assets (1/2 of the deceased spouse’s community property and separate property of the surviving spouse) are placed into the A Trust, or survivor’s trust. The assets required to fund the B Trust do get an adjusted basis on the death of the first spouse, but do not receive a second adjusted basis upon the death of the surviving spouse. Consequently, inheritors of the trust assets at the surviving spouse’s death will not inherit the assets at fair market value and face potential significant capitals gains tax upon sale of those B trust assets.

Due to the increase of the federal estate tax exemption over the past few years (currently $11,200,000 million per person and $22,400,000 million per couple when a surviving spouse elects portability), most married couples are more concerned with avoiding income and capital gains tax rather than estate tax. Portability is a federal tax provision that allows the first spouse to leave all of his or her assets to the surviving spouse. Portability affords an incentive to move away from the AB trust because with today’s $11.2 million exemption amount, a couple can protect $22.4 million without using AB trust planning. Instead, an estate plan that gives the surviving spouse flexibility and control over the trust estate is the better option to avoid estate tax and reduce income tax and potential capital gains tax exposure.

Understanding the B Trust

The requirement to fund and maintain a B Trust is the responsibility of the trustee, typically the surviving spouse. There are several factors to consider and understand regarding the B Trust:

  1. The B trust becomes irrevocable upon the first spouse’s death(surviving spouse cannot revoke, amend, or change the provisions of the B trust).
  2. The surviving spouse’s use of the assets in the B trust are typically limited to the principal amounts for health, education, maintenance, and support.
  3. The trustee is liable to the future “inheritors”of the B trust for appropriately using the assets and rendering yearly accountings.
  4. The trustee must provide a copy of the terms of Trust B to the heirs and future beneficiaries.
  5. The trustee must properly allocate, title assets in, obtain a tax ID number for, and maintain the B trustafter the first spouse’s death.
  6. The trustee must accurately track and keep records of the assets and transactions of each trust and complete separate tax filings for the A & B trusts each year.

It is imperative that you have your estate plan reviewed periodically to ensure your plan evolves with changes in the law and the wishes of you and your spouse. The structure of the AB trust may or not be the best option for your family. If this is your current plan, we would like to discuss the consequences of this structure with you.

Please contact us today for your complimentary estate plan review.


Rachelle Lee-Warner, Attorney at Law



771 E. Daily Drive
Suite 350
Camarillo, CA 93010

Understanding Prop 13

Proposition 13: How Not to Lose it

Proposition 13 has saved many homeowners from losing their homes by keeping property taxes low. Passed by voters in 1978, Proposition 13 lowered property taxes to 1% (from 2.67%) of the full value of the property. Equally as important, Proposition 13 capped the increase in taxes to a maximum increase of 2% per year regardless of the value of the property. A reassessment of the property tax can only be made when the property ownership changes or there is construction done. Pretty simple right? This system has resulted in many homeowners who have owned their home for some time paying significantly less in real property taxes then their neighbors.

Did you know that you can transfer this benefit to your children?

As I mentioned, when a property changes hands–either through a sale or death–it is reassessed. This means that whatever the value of the home is on the date of transfer, the county assessor values the property and imposes property taxes of approximately 1% of the value of the property. If a person has lived in their home for a long time, this reassessment and subsequent taxes can be significant. Yet when the transfer occurs between a parent and a child, the child can inherit the low Proposition 13 tax basis. There are some catches, however.

This “inheritance” of the low tax basis does not happen automatically; each child must file papers with the county very soon after the date of transfer. But what if you don’t get this paperwork filed in time? The answer is that the property gets reassessed. But when the property gets reassessed is very important.

Lessons from Abigail’s Story

Take for example Abigail. Abigail is an elderly woman with three children. Abigail bought her home in 1975 for $20,000. The home is now worth $1,000,000. Abigail’s property taxes are $500 per year. Abigail’s next-door neighbor just purchased a similar home for $1 million. The neighbor’s property taxes are $10,000 a year. This is Proposition 13 at work.

For five years preceding her death, Abigail is in need of in-home care and her daughter Betty takes care of her. Betty puts her life on hold and cares for her mother. Betty also moved into the house to care for her mother. Abigail has two other children Charlie and Danny.

When Abigail finally dies, Betty, Charlie, and Danny all agree that Betty should be able to live in the house for as long as she wants because she took care of Abigail for so long. Betty continues to pay the bills and the property taxes. Abigail’s property tax bill is $500 per year. Nobody tells the county assessor that Abigail has died. The assessor doesn’t know Abigail died until the right form is filed with the assessor’s office. After ten years, Betty decides that it’s time to sell the house and move on. Betty, Charlie, and Danny finally look at mom’s living trust. Since Abigail had a living trust, the children are able to sell the property without probate.

Eleven months after the sale, Betty, as trustee, receives a “Supplemental Unsecured Property Tax” bill in the mail. Because Betty never told the county assessor’s office that Mom died 10 years before, the children were unable to file the necessary papers to avoid reassessment of the property – which would have avoided an increase in property taxes. The assessor has no choice but to reassess the property as of Abigail’s death. This results in increased taxes of $9,500 per year–for a ten-year period–or $95,000. Because Betty served as trustee, she is personally liable for these taxes. To make matters worse, she cannot force her siblings to pay the tax.

This cautionary tale speaks to the value of working with an attorney specializing in estate planning and trust administration to protect your assets and minimize taxes. Had Betty checked in with a qualified lawyer at the time of Abigail’s passing, the family would have saved this $95,000 increase in taxes by understanding the timing implications of reassessments.

James L. Cunningham, Jr., CEO and Lead Attorney



200 Auburn Folsom Rd.
Suite 106
Auburn, CA 93010

5 Critical Components of an Estate Plan

An estate plan is important for people of all ages and wealth levels. Yet many people avoid estate planning because they do not want to think about the end of life, the possibility of failing health, or potential for an unfortunate disability. There is no time like the present to overcome those fears, stop procrastinating and start planning for your future. Pulling back the curtain on what makes up a solid plan may help put you at ease.

Your “estate” is all the property owned both individually and jointly with your spouse—including bank accounts, real estate, jewelry, IRAs, investments—minus that which you owe. If you pass away without a plan, the result is a long, drawn-out probate process that can be very expensive for the family. Being prepared will provide peace of mind for the you and all of your beneficiaries. So let’s get started.

The Top 5 Items That Should be Included in Every Estate Plan

  1. Living Trust – A living trust is a legal document that names someone to take care of your trust assets if you are incapacitated and details who you want to get your estate upon your death. The benefit of a trust is that it does not go through probate, unlike a Will. Probate is a court process where a judge oversees the transfer of your estate to your heirs and of distributing your assets to heirs the paying off your debt. It sounds simple, but it is a very costly and time-consuming process and is a huge hassle (ask anyone who has been through the probate process)!
  2. Will – If you have a living trust, your Will acts as a safety net for assets you forgot to put into your trust during your lifetime. The Will takes those out of trust assets and pours them into your trust (a “Pour-Over Will”).
  3. Living Will – A living Will outlines your wishes for end-of-life medical care. It can include what medical treatments you would (or would not) like to have in the event you become incapacitated. A living Will removes the stress of making these decisions from family members and helps to provide peace during times that can be difficult and emotional. This can be the most important document in your estate plan.
  4. Advance Health Care Directive – An Advance Health Care Directive (AHCD) is a document in which you choose someone to make health decisions for you if you are unable to do so yourself. The Living Will describes your wishes; the AHCD names the person who communicates these to all pertinent healthcare parties.
  5. Durable Financial Power of Attorney – A durable financial power of attorney names an agent who has the power to act in your place for matters relating to finances. This may include paying your bills, accessing your financial accounts, managing your real estate assets, etc. Again, the word durable means that it stays in effect if you become mentally incapacitated and unable to handle your affairs.

Consulting and planning with an estate planning attorney will help to ensure that all your options are explored and the best possible solution for you is implemented. We can walk you through the necessary parts of the estate plan, provide explanations, and create strategies for maximizing your assets and protecting them from unnecessary taxes. We are here to help put your mind at ease.

Stephen Wood, Certified Specialist in Estate Planning, Trust, and Probate Law



771 E. Daily Drive
Suite 350
Camarillo, CA 93010

Maximizing the Value of Inherited IRAs

Stretching an inherited IRA is extremely valuable to the beneficiary. Learn what that means.

An inherited IRA, or “beneficiary IRA”, is an account that gets opened when someone inherits an IRA after the death of its owner. The beneficiary may open an inherited IRA from any variety of eligible IRAs, from Roth and rollover to Simple IRAs and SEPs. This IRA beneficiary is subject to required minimum distributions (RMD) in which all the benefits needs to be distributed within five years. With a stretch inherited IRA, the beneficiary is instead eligible to stretch the RMDs out over their own life expectancy instead of that of the deceased. Given the power of compounding interest, that can make a huge difference.

Illustrating the Power of Time and Yield

We created a chart and a few scenarios to illustrate what a significant difference this can make in maximizing the value of the inherited IRA. The critical factors are annual yield and the age of the beneficiary; that is why well-advised clients often leave their retirement plans to grandchildren rather than to children.

Annual Yield

Sally, age 20, is named as the beneficiary of Grandpa’s $100,000 IRA account, which she receives shortly after his death. Sally is self-disciplined and gets excellent advice, so she manages to stretch the RMDs over her lifetime, allowing the undistributed principal to grow tax free. If her average annual yield is 6%, by age 85 she will receive just over $1,000,000 from the account – a 10x return. But if her annual yield is 10%, she will receive over $6,000,000 – a 60x return!

Age of Beneficiary

Grandpa instead leaves his $100,000 IRA account to Sally’s 50-year old mother Betty. Betty is equally self-disciplined, so she also stretches the IRA distributions over her lifetime. If her yield is 6%, then she will receive over $325,000 from the account – a 3x return. Remember, however, that 20-year-old Sally would have received a 10x return, simply because of the age difference between the two beneficiaries. The importance of age is even more striking if the yield is higher. If the yield is 10%, Betty will receive a return of just less than 8x over her lifetime, compared to Sally, who would receive a 60x return.

* Assumes beneficiary’s lifetime of 85 years or more, and that withdrawals are limited to RMDs. Data gathered by using the calculator at www.hughcalc.org/mrd.cgi                (c) 2018 CunninghamLegal

It is easy to calculate cumulative values of inherited IRAs with initial values other than $100,000, simply by adjusting figures on the table proportionally.

  • If Sally, age 20, inherits a $200,000 IRA with a 6% yield, the estimated cumulative value of the Stretch IRA would be just over $2,000,000, twice the amount shown on the table, because the value of the IRA at the date of death was 2 x $100,000. (Note that the 3x return on the investment remains the same.)
  • RMDs are added to the beneficiary’s taxable income each year, except for RMDs from inherited Roth IRAs, which are not taxed.

Common Mistakes

People fail to understand the high value of stretch IRAs to family members. As a result, some account owners purposefully draw down their IRAs even though they don’t need to, mistakenly believing them to be of less value after death than other assets they can leave to their loved ones. Other account owners leave retirement plans to charities rather than to family, or leave retirement plans to older beneficiaries because they don’t understand the greater value to younger beneficiaries.

There are a variety of reasons that most beneficiaries do not benefit from the full value of their inherited IRAs:

  • The designated beneficiary is the owner’s estate, or no one at all…thus implicitly leaving it to their estate. No stretch-out
  • The designated beneficiary is the owner’s living trust. No stretch-out. (Although the applicable laws and regulations might appear to allow a stretch-out in this situation–assuming the living trust is written perfectly for that purpose–the IRS has not approved this strategy and has actively opposed it in individual cases.)
  • The beneficiary is not financially disciplined enough to save his inheritance for the future.
  • The beneficiary does not understand the value of the stretch-out, so she/he does not attempt to benefit from it
  • The beneficiary invests in ways that result in low yields
  • The inherited IRA is lost to the beneficiary’s divorce, creditors, or bankruptcy

Do Your Planning

The IRA Legacy Trust ensures that beneficiaries avoid the problems noted above. But the stretch out in these trusts is not an automatic process, and it takes a sophisticated estate planner to understand the rules and properly implement it. We are happy to share our expertise with you to maximize the value of your IRA for generations to come.

Source: Edward W. Goodson, Attorney at Law.



200 Auburn Folsom Rd., Suite 106, Auburn, CA 95603