How an IRA Fits In Your Trust and Estate Planning?

What do to with IRA’s, 401K’s, and other pre-tax accounts?
How do those accounts fit into the overall Estate Planning picture?
How do those specific types of qualified accounts have to be titled, when we’re putting together a Trust?
Should the Trust be the owner of a 401K, IRA?
Should the Trust be a beneficiary?
Should it be the kids? Should it be the spouse?

These are some of the questions that clients ask us.
And today Attorney and Financial Advisor Chris Berry answer them in this episode of Daily Wisdom.

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via thisĀ linkĀ or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.

With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.


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Episode Transcript

Putting Together A Trust

Hey, this is Chris Berry. And today we’re going to talk about how your IRAs fit into your trust and your estate planning. If you like this information, please make sure to subscribe to our YouTube channel.

Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He has been featured in publications such as Forbes, Kiplinger’s, Crain’s Detroit, and more. He’s the host of the weekly radio show and podcast, The Chris Berry Show. He’s a national thought leader as it relates to retirement and legacy planning, and has authored the Amazon best-selling book, The Caregiver’s Legal Guide.

So, a big question clients ask us is with regards to what to do with their IRAs and their 401(k)s, and these pre-tax accounts, and how do those accounts fit into the overall estate planning picture? More specifically, how do those specific types of qualified accounts have to be titled when we’re putting together a trust? Should the trust be a owner of a 401(k) IRA? Should the trust be a beneficiary? Should it be the kids? Should it be a spouse? So understand estate planning is not all about just creating that legal structure, we need to figure out how do we tie that legal structure into your financial plan, as well as your tax plan, and that’s why we try to bring all of this together for you.

So with regards to IRAs, understand that when we’re talking about your traditional IRA, they are pre-tax accounts, meaning you have not paid any income tax on them. You’re basically still in a partnership with the Internal Revenue Service with those accounts, and so we have limitations. We cannot, again, I repeat, we cannot name the trust as the owner of your IRA, because it’s still in partnership with the IRS. You have to get out of that partnership, basically pay the tax, before you have freedom to do what you want with that account. Now, what we can do is we can name the trust as a beneficiary of the IRA. And typically, what we do is we’ll name a spouse as a primary beneficiary, so if you’re married, we would name your spouse as the primary beneficiary, so they can do what’s called a spousal rollover, where now that IRA becomes that surviving spouse’s IRA.


Contingent Beneficiary

And then the second piece is we would name the trust as a contingent beneficiary. We would do this instead of naming the kids as contingent beneficiaries, so that now when you and the spouse both pass away, it flows into the trust, and now the children who’re the beneficiaries, can get all the benefits that the trust may include, including asset protection, protection from divorces, creditors, bankruptcies. Make sure that if that beneficiary passes away, the money stays in the bloodline, stays in the family. Those are all things that can be done by naming the trust as a beneficiary. Now, we have some interesting tax rules to consider, but understand by naming the trust as a beneficiary, it’s basically tax neutral. So it doesn’t change the taxation of those pre-tax accounts. And so, whether you name the trust, or you name your children individually, they’re both going to have to operate within the SECURE Act, and the SECURE Act is new as of 2020.

And what the SECURE Act says is, when you leave these pre-tax accounts to the next generation, not a spouse, that’s why we do the spousal rollover, but when we leave it to the next generation, they’re going to have to pay the taxes within 10 years, whether you name the trust outright, or you name the kids as beneficiaries. So regardless, the taxes will have to be paid, but the advantage of naming the trust over outright beneficiaries is now depending on how the trust is set up, those beneficiaries will have all of the asset protection, the creditor protection, the bloodline protection that the trust affords them, that naming them outright would not offer those same benefits. So, IRAs are a little bit tricky, and looking at how do we manage those, again typically, we’re going to maintain you as the owner, name a spouse as a primary beneficiary, and then the contingent beneficiary would be the trust. Hopefully, this has been helpful, helping to educate on how IRAs fit into overall estate planning. This has been Chris Berry, thank you so much.

Castle Wealth Group has clients across the nation and helps families plan, protect, and preserve what is important by creating a retirement and legacy blueprint.



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