July 12, 2016
How to Title IRA Beneficiary Designations
Standalone Retirement Plan Trust
A common question I hear is “who should be named for beneficiaries of an IRA or retirement account?” Should it be the spouse, the kids, the revocable living trust? Typically, I hear, even professionals, say that it should be spouse first to accommodate a spousal rollover, then the living trust while the kids are minors, and then the kids, once they become adults.
There is some wisdom in this planning, however, it is missing a huge opportunity that not enough estate planing lawyers and financial professionals are brining up. That being the Standalone Retirement Plan Trust.
The common wisdom is that it makes sense to name a spouse or individual the beneficiary of an IRA or retirement account for tax purposes. What this allows is for a spousal rollover and continued deferment of taxes for a spouse. For an individual, it would allow for an inherited IRA.
However, what happens if the beneficiary has long-term care issues, medical problems, divorce, creditor issues, or bankruptcy issues? That IRA could be going “bye-bye”. Michigan inherited IRAs are not asset protected.
Or what if the beneficiary cannot be trusted to manage the money properly. If you name a beneficiary outright as beneficiary of the IRA, they could choose to take the IRA as a lump sum, destroying the goal of deferring paying taxes as long as possible.
The solution to this is the Standalone Retirement Plan Trust.
With the Standalone Retirement Plan Trust you can force the stretch out of the IRA for the beneficiary, build in asset protection, and protect the beneficiary against creditors and their own poor mismanagement.
I have no clue while more lawyers and financial planners are not recommending this more to their clients. If you have an IRA or retirement account with a balance greater than $250,000 then it should be a planning tool that is part of the equation.