IRAs: Protection From Creditors Using a Standalone Retirement Trust

Gabriel Katzner - April 13, 2021 - Retirement
protection from creditors: protecting your retirement accounts

Mark and Leslie have been married for 40 years. They each have retirement accounts they have contributed to faithfully throughout their adult lives. Mark and Leslie have three adult children, and Mark has a child from a previous marriage. Mark has recently passed. What will happen to his retirement account? How can Leslie ensure her and Mark’s hard-earned money has adequate protection from creditors?

Leslie was named as the primary beneficiary of Mark’s retirement account. All four of his children were named as contingent beneficiaries. Leslie has three options when inheriting Mark’s individual retirement account (IRA), she could:

  • Cash out the IRA and pay the required income tax: When Leslie cashes out Mark’s IRA, she will have ready access to the funds and can use them as she sees fit. She can even choose who will inherit the funds when she dies. She may even decide to leave all the money to one child, just her children or none of them. The money is not protected from creditors, and Leslie can expect a large tax bill. The funds can be seized in a divorce, a lawsuit, or a bankruptcy proceeding. Leslie is too financially savvy to consider this a good option.
  • Maintain the IRA as an inherited IRA: Since the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, Leslie can take the required distributions from Mark’s IRA over her lifetime and not be held to the ten-year rule. Leslie considers this option, but she does not need the money, and this option does not provide protection from creditors. Leslie would prefer an option that provides creditor protection and allows her to invest the money for her children instead of spending it now.
  • Roll over the IRA into her IRA: Leslie can roll Mark’s IRA into her own, which will provide some creditor protection, but not in all cases. Leslie sees this option as deferring decision-making for distributing the funds to the children and adding to the additional income taxes for the next beneficiary. It also blurs the lines between what her and Mark’s children inherit and Mark’s child from a previous marriage’s inheritance.

Leslie needs a better option, one which will provide her creditor protection, allow her to make investment decisions for the money, and ensure that the funds are distributed to the children in the way she and Mark agreed. A properly drafted Standalone Retirement Trust can meet all of Leslie’s requirements.

The Benefits of a Standalone Retirement Trust

A Standalone Retirement Trust (SRT) is designed to be the beneficiary of your retirement accounts after your death. A Standalone Retirement Trust can protect your spouse, children, and other beneficiaries in the following situations:

  • From creditors
  • Second marriages or divorce
  • From lawsuit claims
  • Business failure
  • Bankruptcy

A properly drafted SRT is one of the best options for protecting your retirement accounts after your death.  Learn more about SRTs and how they can ensure your retirement money benefits your loved ones, not their creditors.

You are welcome to schedule a call with us or reach us directly at 855-528-9637 to learn more about how best to plan today to protect those most important to you.

Gabriel Katzner

In 2002, Gabriel Katzner, the founding partner of Katzner Law Group received his Juris Doctorate with honors from the Fordham University School of Law. After spending the first 7 years of his legal career
practicing at Cahill Gordon & Reindel LLP, an international law firm based in New York, he went on to found his own firm.

Gabriel Katzner has a track record, along with a vast number of outstanding public reviews across platforms, of working hard on behalf of individuals who need assistance with comprehensive
estate planning services. Finding a lawyer who is knowledgeable about revocable and irrevocable trust planning, guardianship for minor children, asset protection, trust administration and probate,
as well as Medi-Cal / Medicaid planning is extremely important.

Years of experience: More than 17 years
Locations: New York, NY / San Diego, CA

Frequently Asked Questions

When you pass, a will helps clarify who will get what so that your loved ones are not left to guess and argue over how things get processed. A will also designates the executor of your estate, so there should be no arguments in court about who should be in charge.

If you pass with minor children and their other parent is not alive or capable of caring for them, you can clarify which family member you would like to have guardianship in your will.

For higher-value estates, estate planning with related taxes in mind is a complex process. We can determine how to position your assets in special trusts or other mechanisms to ensure your family receives as much of your estate as possible.

You decide how your beneficiaries receive your assets, whether in a lump amount all at once through your will or in a structured way over time through a living trust.

When you pass, there is a person who is given the responsibility to distribute your assets in line with your wishes. If you do not identify someone in your will, you risk the courts assigning the task to someone you might not prefer.

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This page has been written, edited, and reviewed by a team of legal writers following our comprehensive editorial guidelines. Furthermore, it has received approval from attorney Gabriel Katzner, an experienced estate planning lawyer with over 17 years of legal expertise.

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