Posted on February 20, 2002 at 13:53:40:
Though your IRA generally has listed beneficiaries and is payable directly to those individuals, the funds are still part of your estate and should be considered that way. For instance, your estate plan should specify how estate taxes on the IRA should be financed; from the IRA or from other funds, and form which heirs.
In addition to estate taxes, the IRA is subject to income taxes, too. In estate plans where large charitable donations are listed, it may be advisable to donate part of the IRA to the charity (which pays no income tax) and fund other bequests from nontaxable sources. In some cases, the double tax bite may be mitigated by a deduction for income in respect of a decedent; check with an expert on this, because the rules are complex.
If your IRA has several beneficiaries, divide the account as you wish now so that they won’t have to liquidate--and pay taxes--to divide the assets. They can even take the proceeds over their own lifetimes.