Taking Control of Your IRA

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December 10, 2013

While traditional IRAs can enable you to stretch your wealth free from taxes, they have limitations when it comes to estate planning. The Private Client Reserve’s Sally Mullen and Michael Poulter discuss a new option: the U.S. Bank Heritage IRA™, which may give owners more control over how the asset is distributed to their beneficiaries — and more confidence that their savings will be managed in the way they intended. Keep in mind that U.S. Bank and its representatives don’t provide tax or legal advice; you should consult your tax or legal advisor for information concerning your situation.


Potential Benefits of the Heritage IRA

Mullen: Individuals often have little say in how their wealth is managed once they’ve passed away, and that can be frustrating for some traditional IRA owners. One of the primary goals of the Heritage IRA is to help owners stretch the benefit over their lifetime and the lifetime of their beneficiaries. Mike, why might that be attractive to certain clients?

Sally Mullen is the Chief Fiduciary Officer for The Private Client Reserve; illustration by Joel Kimmel


Poulter: The primary benefit of a traditional IRA is its qualified function: The assets you put in are not taxed until they are taken out. The goal for most traditional IRA owners is to stretch that benefit as long as they can by avoiding taxation of the asset for as long as possible.

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December 10, 2013

This stretch is commonly attempted when an owner leaves the IRA assets to a spouse, who rolls it into his or her own IRA. When that spouse dies, the assets are then left to the children, who roll them into an inheritance IRA. The idea is that at each level, the beneficiary takes only the required minimum distribution, leaving the rest of the asset to potentially grow untaxed.


The problem is that it doesn’t work a lot of the time. As soon as children at the successor beneficiary stage have full access, the assets often are exhausted in five to seven years, and the whole opportunity to stretch is lost.


Mullen: So how does the Heritage IRA prevent that?


Poulter: The Heritage IRA gives you much more control to make the stretch work.

Michael Poulter is the Market Leader for The Private Client Reserve in Salt Lake City; illustration by Joel Kimmel


It has to conform to the minimum distribution rule, but after that, owners have greater flexibility over who can access the money, how much they can access and how it will be managed over time. It provides the benefits of an IRA with the control of a trust and the strength of U.S. Bank as the fiduciary.

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December 10, 2013

Is the Heritage IRA Right for You?

Mullen: Is the Heritage IRA for everyone, or is this a vehicle that makes more sense at certain asset levels?


Poulter: From a financial perspective, it’s generally for IRAs that have a minimum of $2 million in assets, although we do have some flexibility on that amount.


The reason to set this minimum is that U.S. Banktakes fiduciary responsibility for the management and distribution of wealth to all Heritage IRA beneficiaries. If the asset is of very small value, which can happen when you divide them into smaller shares, 

it might be more costefficient to handle that distribution another way, such as through an outright gift or traditional IRA. You want the asset pool to be significant enough to make the maintenance expenses reasonable.


The Heritage IRA also might not accommodate every planning scenario for individuals who need more complex trusts. For example, an owner might require a trust that will accumulate income and pay out according to a certain degree of complexity. Or an owner might want to create a situation through which a beneficiary can’t access any of the assets until he or she clears a hurdle, such as achieving a certain level of education or salary.

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December 10, 2013

Mullen: So if you don’t want the beneficiary to get money until a certain point, it’s probably not the right vehicle. But if you want to control whether they receive more than the minimum distribution, or minimize transfer of assets to individuals as part of your estate plan, this could be a great planning tool.


Poulter: Exactly.


Mullen: The Heritage IRA provides technical benefits as well. What about Qualified Terminable Interest Property (QTIP) or Qualified Domestic Trusts (QDOT)? How does this vehicle fit some of those estate-planning opportunities?

Poulter: A QTIP allows a property to qualify for the unlimited marital deduction. Unlike traditional IRAs, the Heritage IRA allows owners to QTIP a portion of their IRA assets. That means the asset qualifies for the unlimited marital deduction, but the owner can still wield control over how that asset is distributed beyond the death of the surviving spouse.


Mullen: And what about the QDOT?


Poulter: The IRS tax code allows a certain amount of assets to qualify for the marital deduction if an owner is married to a non-U.S. citizen. If an owner has a Heritage IRA, that amount can now be designated through the IRA. In this way, our clients might achieve the benefit of the tax deferral along with the qualification of the QDOT property.

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December 10, 2013

Leveraging Fiduciary Experience

Mullen: Under a traditional IRA agreement, in the event of incapacity, U.S. Bank has no ability to pay bills or satisfy any of the financial needs of our owners. This means owners can’t take advantage of the very fiduciary experience that they have come to rely on as our client. Does the Heritage IRA address this issue?


Poulter: In the event of incapacity, the Heritage IRA enables us to step in and use our fiduciary capacity to make decisions on the owner’s behalf in terms of how to expend funds — even using resources from the IRA if necessary. This is where the strength of U.S. Bank really comesinto play. We’ve been a fiduciary for well over100 years, and we have extensive experience working in this role to satisfy our clients’ financial needs, especially in the event of incapacity.

Mullen: If current or prospective IRA owners want to learn more about the Heritage IRA, where should they start?


Poulter: Any Wealth Management Advisor in The Private Client Reserve can explain the Heritage IRA in more detail, work with your tax and legal advisors to determine if it’s a good fit for you and set up one. It’s a very simple process.


Mullen: This is just another opportunity that helps our clients shape their financial future when they leave a legacy for the next generation.


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Financial Planning