IRA Retirement Trusts

Few people fully understand what could happen to their retirement plans after they pass away. In theory, leaving a retirement plan to a loved one seems pretty simple. All you need is a beneficiary designation form where you designate a primary as well as a contingent beneficiary. In real life though, what happens to retirement accounts after the death of a plan owner is sometimes surprising.

There are numerous reasons for the surprises. For example, it could be your intended (or correct) beneficiaries are not named because a beneficiary designation form was not updated after a birth, death, marriage or divorce, and this lack of follow through results in unintended or disinherited beneficiaries. Another common shock occurs when retirement plans are left to children who are not ready to handle the funds. First of all, if the funds are left to a minor, a court guardianship will likely be needed. Secondly, under the SECURE Act passed in December of 2019, beneficiaries can no longer stretch out minimum required distributions over their lifespan. Under current law, beneficiaries of retirement accounts must take out those monies (and pay taxes) within ten years of inheriting those accounts. It is important to note though that there are exceptions for spouses, disabled/chronically ill beneficiaries, and minors, to name a few. In these types of situations, it could make a lot of sense to direct those retirement accounts to a “special” trust (i.e., an IRA Retirement Trust) so that those funds can be managed (and not wasted) for the benefit of those beneficiaries. Still, you might wonder why such a trust is needed, especially for a surviving spouse? retirement-trusts

Good question! The answer is especially important if you have a “blended” family. That is, if you or your spouse have children from a prior relationship, most of time we find that the owner of that retirement plan wants the plan to provide income to their spouse, while she or he is alive, but after both spouses are gone, they want the remainder of that retirement account to go to “their” beneficiaries (e.g., their children). If they just name their spouse as the primary beneficiary of that retirement account, when both spouses are gone, the last surviving spouse can leave that retirement account to their children from a prior relationship (in other words, disinherit your kids in favor of your spouses kids), or worse, the surviving spouse could end up remarrying an entirely new person and leave your retirement account to yet another spouse, who in theory could ultimately leave any remaining funds in the retirement account to children outside of both of the original relationships or to anyone else for that matter. What I'm saying is that if you just leave your retirement account(s) to someone, they can later leave it to anyone else, defeating any intent you might have to leave the remainder of your retirement account(s) ultimately to your heirs. In these situations, an IRA Retirement Trust is incredibly important.

retirement-trusts Also of concern is the 2014 Clark vs. Rameker Supreme Court case in which the high court ruled that inherited IRAs are no longer protected in bankruptcy. The ramifications of this decision reach far and wide. Today, divorcing spouses, business partners, foreclosing banks and the like (of your children), can potentially attach their inherited retirement accounts (which came from you!). Because most of the time Retirement Account funds must now be taken out in ten years or less, the upside to creditor protection with this type of trust is more limited than it used to be. Still, you can provide a certain degree of protection for your children (beneficiaries) by utilizing an IRA Retirement Trust. Given the frequency of divorce, bankruptcy, lawsuits of any kind, etc., many parents really like knowing that their retirement accounts are locked up for a good period of time for the benefit of their beneficiaries and not their beneficiaries creditors.

So how do Retirement Trusts work?

Well, besides naming YOUR potential beneficiaries, you can name YOUR Trustees, as well as Special Trustees and Trust Protectors (if you want extra protection) to run that trust. All of these key persons are needed to ensure that the trust runs properly, while retaining as much creditor (and predator, e.g., future ex-spouses) protection as possible. You can also designate exactly how conservative or liberal the distributions from that Retirement Trust should or needs to be, for the benefit of your loved ones.


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During these tumultuous times, please note that we are taking every precaution to ensure the safety of our clients and staff. For In-Person Meetings, our staff wears face masks and we're extremely vigilant in cleaning as well as sterilizing all surfaces. Plus, we offer our clients complimentary face masks, gloves and hand sanitizer for all meetings. We additionally implement mandatory social distancing, even inside of our conference rooms. We are likewise inventive and malleable with such measures, such as completing or executing estate plans for clients, where our clients are comfortable inside of their vehicles, as we stand outside their vehicle passing documents (which need to be signed) back and forth through their window. Furthermore, we offer video and telephone conferences as part of the normal course of our business. In other words, we are extremely flexible and implement policies which are appropriate for each of our clients. As always, we're open for business and we are here for you.