Gabriel Katzner - April 6, 2021 - Asset Protection

You have spent a lifetime building your retirement accounts. The asset protection they provide from creditors and a financial safety net for the future are benefits that lead all savvy investors to maximize their contributions each year. Do these same benefits carry-over when you pass your retirement account on to your spouse, child, or other loved one? Unfortunately, no. There is another option, though, a Standalone Retirement Trust.

Imagine for a moment. Your 50 something son is going through a midlife crisis. Fast cars, drinking, and frequent travel is his new lifestyle. He has an accident that causes an injury. A lawsuit follows. Creditors have the power to seize the money in your accounts to satisfy their claims. One mistake by your beneficiaries leading to a lawsuit can be the end of your lifelong, hard-earned savings. Life happens. A slip-and-fall injury, a dog bite, a trampoline injury, or a four-wheeler crash, we can all relate.

Imagine for a moment. Your 16-year-old son is crushed by your death. He knows his parents were a physician and an investment banker, respectively. He grew up in a life of relative luxury, never wanting for much thanks to his hard-working parents. One thing he’s also doing is counting down the days until he turns 18, can access the retirement accounts in full, and put the money to what he considers to be “good use” – a fancy sports car, vacation with friends, and whatever else suits his fancy.

So, maybe it is not a creditor that drains the account. Parents almost always have concerns that their beneficiaries haven’t truly learned the value of a dollar, especially when they did not earn the dollar. You may be a ‘save for a rainy day’ person, your children may believe we should all live for today and not worry about tomorrow – and spend money accordingly.

There is another option. A trust called a Standalone Retirement Trust (SRT) can protect your retirement accounts. An SRT is a trust created for your beneficiary to hold and distribute in a structured, asset-protected manner, the unspent money in tax-qualified retirement accounts when you pass away. You would appoint a trustee for your trust, and they would be responsible for meeting the usual requirements for an IRA or other tax-advantaged account, such as making required withdrawals, and they’d also be responsible for making distributions to your beneficiaries in the manner you’ve decided on during your life.

Consider the following benefits of a standalone retirement trust (SRT):

  • You have worked hard to accumulate your wealth and take great pride in the fact that your loved ones will be financially taken care of throughout their lifetimes. A properly drafted Standalone Retirement Trust can ensure creditors or ex-spouses do not have access to the trust funds.
  • You feel your loved ones may need a little guidance on how to invest and spend your funds. With a Standalone Retirement Trust, you can provide oversight in advance on how the funds will be invested. You can also dictate when the distributions will be made and how much will be allocated to each beneficiary.
  • If you have a beneficiary who receives or is qualified for a need-based governmental assistance program, a Standalone Retirement Trust can be drafted so they are not disqualified from the program. A situation that could occur if they inherit an individual retirement account.
  • A Standalone Retirement Trust can also ensure that your children from a previous marriage are not disinherited when your current spouse inherits your retirement account as the primary beneficiary, even though you named them as contingent beneficiaries. Instead, you can name your spouse as the lifetime beneficiary of the SRT and then have the remainder of the funds pass to your children after your spouse’s death.

A Standalone Retirement Trust trust may be the answer for you. Hearing about its benefits may have raised additional questions. You are welcome to schedule a call with us or reach us directly at 855.434.2062 to learn more about how best to plan today to protect those most important to you.

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