The United States Supreme Court has determined that inherited IRAs are not protected from bankruptcy creditors. This development presents a serious risk for clients but there are solutions we are prepared to talk to you about.
THE PROBLEM: If a retirement account is seized in a lawsuit, spent down on frivolities, or wrangled from a beneficiary by a predator, those assets are lost forever. If a trust for the benefit of your loved one is named the beneficiary at your death, the trust itself provides the asset protection needed.
THE SOLUTION: The Standalone Retirement Trust is the solution because in the absence of any creditor problems now or in the future for the owner, it can assure, not only asset protection of the IRA but continuation of the ‘stretch’ allowing it to grow.
By far the best option for protecting retirement accounts is to create a Standalone Retirement Trust (SRT) for the benefit of all of the intended beneficiaries. If properly drafted, this type of trust offers the following advantages:
- Protects the inherited retirement account from beneficiaries’ creditors as well as predators and lawsuits
- Ensures that the inherited retirement account remains in the family bloodline and out of the hands of a beneficiary’s spouse, or soon-to-be ex-spouse
- Allows for experienced investment management and oversight of the retirement account assets by a professional trustee (continuing what you began)
- Prevents the beneficiary from gambling away the inherited retirement account or blowing it all on exotic vacations, expensive jewelry, designer shoes, and fast cars
- Enables proper planning for a special needs beneficiary
- Permits minor beneficiaries such as grandchildren to be immediate beneficiaries of the inherited IRA 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
There is one more beneficiary you may not have considered; your spouse. There may be reasons that you want to establish a SRT with your spouse as its first beneficiary:
- Creditor protection, including a second marriage with a blended family
- Spend-down protection from a long term care need
SRTs are certainly not one-size-fits-all planning and can only be done on an individual, case-by-case basis. We are here to answer your questions about protecting beneficiaries of retirement accounts through Standalone Retirement Trusts including layered beneficiary designations. Call us today to schedule your complimentary consultation.