Your retirement accounts come with some great features. Two of the primary features are tax-deferred growth and asset protection. However, these great features do not fully pass to your loved ones after your death. The tax-deferred growth is limited, with some exceptions, to a ten-year period for your beneficiaries. The asset protection disappears completely.
When your spouse, child, or other loved one inherits your retirement account, creditors have the power to seize it and use the funds to satisfy their claims. One lawsuit could cause your life-long, hard-earned savings to be completely gone. Fortunately, there is a solution to this problem. A special trust called a standalone retirement trust (SRT) can protect inherited retirement accounts from your beneficiaries’ creditors.
You want your loved one to benefit from your retirement account, not the creditors. If you or your beneficiaries fall into any of these five categories, you should seriously consider using an SRT to protect your retirement accounts:
- You have substantial combined retirement plans. Loved ones can use an SRT to shield the retirement plans from creditors.
- You believe your beneficiary may be less than frugal with the funds. You should consider an SRT if you are concerned about how your beneficiary will spend an inheritance, as you can provide oversight and instruction on how much they receive and when.
- You are concerned about lawsuits, divorce, or other possible legal actions. If your beneficiary is part of a lawsuit, is about to divorce or file for bankruptcy, or is involved in any type of legal action, a properly drafted SRT can protect the inherited retirement accounts from those creditors.
- You have beneficiaries who receive assistance. If a beneficiary receives, or may qualify for, a needs-based governmental assistance program, it is important to know that inheriting an individual retirement account may cause the beneficiary to lose those benefits. An SRT can be drafted to avoid disqualification.
- You are married with children from a previous marriage. If you are married and have children from a previous marriage, naming your spouse as the primary beneficiary of your retirement account could allow your spouse to intentionally (or unintentionally) disinherit your children, even if you named your children as the contingent (backup) beneficiaries on the account. You can avoid this by naming your spouse as the lifetime beneficiary of an SRT and then having the remainder pass to your children from a previous marriage after your spouse’s death.
You have worked hard to protect and grow your wealth–let’s keep it that way.
You worked hard to save the money in those retirement accounts, and your beneficiaries’ creditors should not be able take it from them. Give us a call and let us show you how an SRT can help you protect your retirement accounts.