We all know that one of the biggest considerations in an estate plan is avoiding taxes. Your estate assets at the time of death are potentially subject to estate taxes which is why any complete estate plan must look for ways to avoid taxation. One tool you may wish to include in your estate plan that can help avoid taxes is a Roth IRA.
Many people choose to make contributions to an individual retirement account, or IRA, to help fund their retirement. A Roth IRA can accomplish that goal; however, it has the added benefit of being an excellent estate planning tool as well if not used for your retirement.
A Roth IRA operates the same way as a traditional IRA in that you can contribute up to the maximum amount per year ($5,500 in 2013 or $6,500 if you are over the age of 50) into an account that then grows over the years. Unlike a traditionally IRA though, your contributions are not tax-free. Also unlike a traditionally IRA, your distributions are tax-free. The other major difference between the two is that a traditional IRA requires you to begin at least minimum distributions at age 70.5 whereas there is no minimum distribution requirement for a Roth IRA.
If you believe that you will not need the funds you contribute to a Roth IRA during your retirement, then it may be a good choice as an estate planning tool. You can pass down the account to a beneficiary who will typically be able to withdraw the funds held in the account tax-free.