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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Spouse's option to avoid estate taxes

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If in doubt, please send a new question or ask for an update.

Q: You mentioned that my wife has the right to waive her rights as beneficiary of my IRA accounts. Why would she want to do that?

A: For most of our country’s history we have taxed the wealth that was transferred from one generation to another through a tax on estates. This tax rate has usually been higher than income tax rates – often more than 30% even for those of modest wealth. Right now we do not tax most estate transfers but most financial advisers including the author believe that a return of the estate tax is likely within the next five years. If this happens, then the only way to avoid estate taxes on the transfer of money from parents to children is to take advantage of other existing tax strategies available before the death of the owner. One of the most commonly used estate planning practices for IRA accounts is to name your spouse as primary beneficiary and your children as secondary beneficiaries. Then, after the death of the IRA account owner, the spouse has the legal right either to receive the money or to waive the right to receive all or part of the money, thereby passing the money directly to the children and escaping the estate tax that would otherwise be paid on these funds. In short, this specific tool makes more tax planning options available later to our family members who survive us. This type of tax planning is applicable only for affluent families where taxable assets are generally in excess of $1 million. But the basic concept of naming a spouse as primary beneficiary and the children as secondary beneficiaries is applicable to most married IRA owners regardless of their wealth.


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