We have all been told multiple times that saving for retirement is important. It may not have seemed like a big deal when we were younger, but we sure did recognize the importance as we aged. Simply put, saving money while we were still working and not touching it meant that those funds would still be there for us when we were not working anymore. And if you were diligent and saved, your retirement account funds are likely the largest asset in your estate today.
To protect that money even further and allow your family/beneficiaries to benefit without limitations after you are gone, we suggest that you go a step further and establish a Retirement Plan Trust.
As I explain in my book, Who Gets Your Stuff When You Die, it is a mistake to think that your retirement accounts will remain asset-protected after you die. In a perfect scenario, they will go to a surviving spouse. But what happens if they are gone, too? The short answer is that a lot can go wrong. Establishing a Retirement Plan Trust or an IRA Inheritance TrustTM anticipates problems and protects your retirement accounts and the people you left them to.
Below are just a few benefits of a Retirement Plan Trust:
Spendthrift protection — Retirement plans are designed to provide maximum benefit to those who withdraw funds at a modest rate over time. The problem is that beneficiaries who aren’t restricted in some way may view this windfall of money as if they won the lottery. There is a temptation to spend it all, and when this happens, the remaining funds gain less through interest. The amount spent also carries a higher tax burden and decreases the total value of the legacy. A Retirement Plan Trust encourages the beneficiary to take the funds out over his or her entire lifetime rather than immediately withdraw the whole amount. It also protects this individual from his or her temptation to misspend the money.
Predator protection — Even if the individual beneficiary does not have spendthrift tendencies, there are many out there whose interest lies in separating the beneficiary from their money and property.
Creditor protection — If a surviving spouse inherits your retirement account, the money will continue to be protected from taxation, creditors, and lawsuits as if it were still in original ownership. This is not true when the retirement funds go to someone other than the original owner’s surviving spouse. Establishing a Retirement Plan Trust and naming it as the beneficiary of an IRA or qualified plan makes the beneficiary a less attractive target.
Divorce protection — With the national divorce rate above 50%, it is impossible to determine which marriages will stand the test of time. A Retirement Plan Trust keeps the inherited IRA from being divided or even lost in a divorce.
Government benefits protection — As with divorce, whether a healthy beneficiary will suffer some catastrophe that makes him or her dependent on needs-based government programs is unpredictable. Inheriting an IRA can easily disqualify someone from receiving needs-based government benefits until the IRA is exhausted. On the other hand, a protected trust can provide for additional needs even with the help of government benefits.
Consistent investment management — This allows the current investment advisors to continue to be involved.
Estate planning — A Retirement Plan Trust or IRA Inheritance Trust creates control over the use of the retirement plan/IRA assets (example: to fund education, start a business, buy the beneficiary’s first home, or prevent diversion away from the owner/participant’s descendants in the case of a blended family).
Call Leigh Hilton PLLC today!!
A competent estate planner familiar with wills and different kinds of trusts and benefits is a valuable partner. Please call Leigh Hilton PLLC so that we can help ensure your beneficiaries are taken care of in the best way possible. Leigh Hilton PLLC wants to be your first call every time for any estate planning need. We look forward to serving you.
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