When Does My Estate Plan Distribute Assets and What Are the Restrictions?

Posted by Robert Steinberg | Feb 06, 2024 | 0 Comments

Once you have decided who will received your assets, determining when beneficiaries should receive their inheritance is often one of the most difficult decisions you will make in preparing your plan. This decision involves a delicate balance between trying to protect your family and how much control you should exert from the grave. In some cases, such as with a special needs child or a child who has demonstrated an inability to handle money, the answer may be never. However, there is no one-size-fits-all rule for determining distribution timing, and recommendations will vary significantly among estate planning professionals.  

If you have young children, you have no idea of whether they will be financially responsible when they grow up. In these cases, a common approach is to distribute a portion of the principal at a certain age, such as 25, and the remaining balance at a later age, such as 30. As your children age, you will obtain a better understanding of how they handle finances. Instead of equal distributions, a many favor distributing 1/3 of the balance at an earlier age and the balance five years later. Keep in mind these decisions can easily be amended as your children age.

When it comes to retirement accounts, your ability to restrict distributions is limited by IRS distribution requirements. Money in these accounts usually has not been taxed and recent tax law changes often require these funds to be distributed over a relatively short timeframe.  Unless your spouse is the beneficiary, with a few limited exceptions, current IRS rules require non-spouse beneficiaries to fully withdraw any IRA balance within 10 years of the original owner's death. If you have a large retirement balance, this can result in significant taxable distributions being received over a relatively short period.  

Many parents are hesitant to leave money outright to children due to concerns about their son-in-law or daughter-in-law. While the primary concern is usually what happens if they get divorced, parents also are wary of an ill-conceived business venture or a history of being a spendthrift. In these circumstances, delaying distribution ages or adding additional restrictions can be worth considering.

About the Author

Robert Steinberg

Robert is the Founder and CEO of Blue Chip Partners. He is an attorney (JD), Certified Public Accountant (CPA), and CERTIFIED FINANCIAL PLANNER™ professional. He is the visionary of the firm and also leads the team's hiring efforts taking special care to make sure that each new employee is a match for our positive culture.

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