Posted by the Life and Legacy Planning Group
Do you have an individual retirement account or other type of retirement account that you plan to leave to your loved ones? If so, proceed with caution. Inherited retirement accounts do not have asset protection when they pass to your loved ones, meaning creditors can seize the money in the accounts to satisfy any claims against your beneficiaries.
How Can Inherited Retirement Accounts Be Protected?
Fortunately, retirement accounts can be protected, but only if you take action. Enter the Standalone Retirement Trust (SRT). Many people use SRTs, a special type of trust that can protect retirement accounts.
A properly drafted SRT can do all of the following:
- Protect the inherited retirement accounts from creditors, predators, and lawsuits
- Ensure inherited retirement accounts remain in your family and out of the hands of a child’s spouse or ex-spouse
- Allow for experienced investment management and oversight of the account funds by a professional trustee
- Prevent the beneficiary from gambling away the inherited retirement account or spending it all on exotic vacations, expensive jewelry, designer shoes, and fast cars
- Provide proper planning for a special needs beneficiary to avoid disqualifying the beneficiary from receiving needs-based government benefits
- Allow you to name minor beneficiaries, such as grandchildren, without the need for court-supervised guardianship
- Facilitate generation-skipping transfer tax planning to ensure taxes are minimized or even eliminated at each generation of your family
The Bottom Line
We are here to help you navigate the best strategy for protecting your retirement accounts from your beneficiary’s creditors. We look forward to hearing from you soon.