Articles Tagged with new york trust law

If you inherit an individual retirement account, or IRA, there are a few key rules you should be aware of in order to avoid potential legal, financial, and tax issues. Failure to do so could result in a smaller legacy left behind and a headache for your beneficiaries.

Never Commingle Inherited IRAs with Non-Inherited IRAs

Inherited IRAs are separate financial accounts than IRAs or retirement accounts you may own and contribute to for yourself. You cannot commingle the funds from your IRAs and inherited IRAs. If you inherit multiple accounts from the same person such as your father, you can combine those accounts into a single IRA. Assets inherited from different individuals, such as your mother and father, you cannot combine those accounts. It is also important to note that you cannot combine inherited accounts of different types, such as your father’s traditional IRA and his Roth IRA.

SOMETIMES MAY BE BETTER TO DISTRIBUTE THAN HOLD ON

Most trustees know that they have to make an accounting and pay taxes on at least a quarterly basis. While accounting itself may seem like a relatively simple theoretical proposition, the truth is much different. The devil is in the details. Allocation of each line of income to specific taxes, each with its own tax forms, requires that the trustee account for every penny that comes in, how it is earned, how it is treated under both federal and state tax laws and how it is distributed is a full time job to say the least. Once a trust is funded, it generally does not act simply as a bank account simply holding the money for later distribution.

Often the money is invested in a diverse portfolio of stocks, bonds and other financial instruments. It is not uncommon for a trust to include ownership of real estate assets that produce income in the form of rent or mineral royalties or perhaps even intellectual property which can produce a different source of income. Whatever the source, most trusts are now subject to a 3.8% net investment income tax on any undistributed income that is not distributed to beneficiaries or given to charities. While this figure may be low it is a consideration that needs to be taken into account when determining whether to pay out certain monies to beneficiaries, from what source that money comes from, whether it is from principal, capital gains or dividends.

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