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Retirement Plan Trusts

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Retirement Trust Lawyers Helping Your Protect Your Family’s Future

When it comes to estate planning, one crucial aspect that often gets overlooked is your qualified retirement account, such as your IRA or 401(k). Many individuals lack proper guidance when it comes to managing their qualified retirement accounts. They are often informed about what not to do, but not given clear instructions on what they should do.

It’s important to note that your qualified retirement account cannot be owned by your trust. Instead, you should designate a beneficiary who will receive the remaining funds upon your passing. For most people, this beneficiary is either their surviving spouse or their surviving children.

Ensuring your estate plan covers all aspects, including your qualified retirement account, is vital for comprehensive financial management and peace of mind. For more information about California retirement trusts, contact our skilled Newport Beach estate planning attorney at Finn Legal Group to schedule a consultation.

What Are Retirement Plan Trusts?

You can designate a specially designed trust as the beneficiary of your IRA or other qualified retirement plans. This innovative planning tool offers numerous significant benefits for you and your loved ones. These include maximizing income tax deferral and wealth accumulation for your retirement plans, minimizing estate and generation-skipping taxes, ensuring distribution to desired beneficiaries across generations, and providing spendthrift, divorce, and creditor protection for your beneficiaries. It is advisable to set up a Retirement Plan Trust separately from your Living Trust, especially if your combined IRAs and company retirement plans exceed $150,000.

Should You Name Your Children as Beneficiaries?

Naming your children directly as beneficiaries can lead to a couple of issues. Firstly, by doing so, your IRA becomes vulnerable to its liabilities. For instance, if your beneficiary goes through a divorce, the money is now at risk. Similarly, in the event of a car accident or lawsuit, that money is subject to potential loss. The retirement account you intended to provide for them, hoping it would last for years, is unfortunately depleted, leaving them without the chance to fully enjoy it.

Secondly, if you designate a minor child or grandchild as a beneficiary, they are not yet legally eligible to own a qualified retirement account. This can trigger an expensive and time-consuming court process, where someone is appointed to oversee the account until the beneficiary reaches 18. This creates another predicament, as an 18-year-old would then be responsible for managing a potentially substantial amount of taxable funds.

Naming Your Beneficiaries vs Naming Your Living Trust

Naming your living trust can have unintended consequences, such as accelerating the income tax due after your passing. Surprisingly, most living trusts we’ve reviewed (over 10,000 and counting) fail to offer any asset protection for beneficiaries.

You might be wondering, “What other options do I have? Don’t I need to name a beneficiary to avoid probate for my IRA?” Indeed, it’s crucial to designate a beneficiary. However, the common choices are limited to either naming your children directly or naming your living trust as the beneficiary. As we’ve discussed, each option presents its own set of challenges.

The Retirement Trust serves as a hybrid of the two options. It safeguards your beneficiaries’ assets, shielding the qualified retirement account from potential risks such as divorce, lawsuits, or bankruptcy. Additionally, it does not trigger additional income taxes, even if a trust is designated as the beneficiary.

In essence, the Retirement Trust provides comprehensive asset protection to your beneficiaries while avoiding unnecessary tax implications. If you possess a qualified retirement account, integrating a Retirement Trust into your estate plan should be seriously considered.

Contact Our Newport Beach Retirement Trusts Lawyer Now

Our practice is dedicated to providing a specialized form of estate planning to our clients. Our goal is to help ensure that their IRAs or other retirement accounts maintain a tax deferral status for a lifetime, even after they pass away. Additionally, we aim to safeguard their children from potential risks such as divorcing spouses, lawsuits, creditors, and bankruptcy.

To achieve this, we assist our clients in setting up a Retirement Plan Trust. This trust acts as a secure container for the required minimum distributions from their retirement accounts. These distributions are then directed towards benefiting their children or other important beneficiaries after their passing.

If you would like to learn more about Retirement Plan Trusts and determine if this type of planning is suitable for you and your family, we invite you to contact Finn Legal Group. Schedule a consultation with us today.