Standalone Retirement Trusts (SRTs) are an option to protect your individual retirement accounts that you may not have considered. One of the major benefits of an IRA, 401k, or other retirement account is, with some exceptions beyond the scope of this article, the money is safely tucked away from most creditors. It is why many people put most of their wealth in IRAs, 401ks, and similar accounts. This benefit is lost when you pass your retirement account on to your beneficiary post your death – that’s right, an inherited retirement asset has zero asset protection under the law (if you’re wondering why that’s the case, you can read the 2013 U.S. Supreme Court decision HERE).
What if a trust, not an individual(s), was your designated beneficiary? Trusts can preserve and protect your assets. A revocable living trust has drawbacks when it comes to planning for retirement assets, including a fixed distribution schedule and a lack of protection from creditors. A special trust, a Standalone Retirement Trust, provides many benefits other trusts cannot offer when considering how best to preserve your retirement account money for your loved ones. A well drafted Standalone Retirement Trusts can:
- Protect your assets from creditors, predators, and lawsuits
- Prevent young beneficiaries from wiping out the retirement account at the financially immature age of 18
- Allow you to preserve inheritances for minor beneficiaries without the need for a court-supervised guardianship
- Ensure your money goes to the beneficiaries you intended, not an ex-spouse or a child’s spouse
- Provide a mechanism for a trustee of your choosing to manage and oversee your funds on behalf of your beneficiaries post your death
- Prevent beneficiaries who have challenges properly managing money from gambling away your funds or spending it on expensive items with no lasting value
- Ensure that any beneficiaries who rely on needs-based government programs are not disqualified from the program after inheriting
- Minimize or even eliminate taxes by facilitating generation-skipping transfer taxes
Anyone with wealth invested in individual retirement accounts should be aware of the benefits of SRT’s in order to determine if they would be an excellent addition to their asset protection and estate planning needs. The clients we most often see put in place a Standalone Retirement Trusts are those with total retirement assets exceeding $100,000 – that seems to be the sweet spot at which point the benefits of putting in place a Standalone Retirement Trusts far exceed the costs of doing so.