Content provided by WealthCounsel; reviewed and edited by Kenneth A. Dodl, Esq.
Do you have IRAs or other retirement accounts that you plan to leave to your loved ones? If so, proceed with caution. Most people don’t know the law has changed: inherited retirement accounts no longer have asset protection, meaning they can be seized by claims against your beneficiaries.
How Can Inherited IRAs Be Protected? Enter the Retirement Plan Trust
Fortunately, you can still protect your retirement account for your beneficiaries but only if you take action. Many people are now using Retirement Plan Trusts as part of their estate planning to protect retirement assets. The Retirement Plan Trust is a special type of trust just for retirement accounts that can be designed to work with your Revocable Living Trust or to stand on its own.
A properly drafted Retirement Plan Trust:
- Protects the inherited retirement accounts from creditors as well as predators and lawsuits
- Ensures that your retirement accounts provide for the long-run by stretching required distributions over the life expectancy of your beneficiaries, even grandchildren!
- Can help ensures that inherited retirement accounts remain in your family and out of the hands of in-laws or former in-laws
- Allows for experienced investment management and oversight of the assets
- Prevents your beneficiaries from “blowing” your retirement account on exotic vacations, expensive jewelry, designer shoes, and fast cars, and the taxes that come with unwise distributions
- Enables proper planning for a special needs beneficiary
- Permits you to name minor beneficiaries such as grandchildren without the need for a court-supervised guardianship
- Facilitates generation-skipping transfer tax planning to ensure that estate taxes are minimized or even eliminated at each generation of your family
The Bottom Line on Protecting Inherited IRAs
Unfortunately, the changes in the law have made naming your children as outright beneficiaries on your retirement accounts risky business. However, we are here to help you decide whether an RPT is a good fit for you as part of your estate plan, and we are happy to answer your questions about protecting your retirement accounts. We look forward to hearing from you.