Many questions arise concerning the treatment of retirement accounts, as they relate to estate planning due to potential tax benefits and consequences. Depending on the size of your retirement account and your estate planning goals, a Standalone Retirement Trust (SRT) may be beneficial as part of your overall estate plan. The Standalone Retirement Trust is an estate planning tool that is designed to permit a beneficiary to “stretch” the required minimum distributions (RMDs) following the death of the account owner, allowing the principal to grow and resulting in less taxable income each year for the beneficiary. The SRT is carefully drafted to ensure it meets all of the Internal Revenue Service regulations in order to avoid a mandatory liquidation of the IRA over a period of five (5) years, which could result in a significant tax bill.
A retirement trust also provides protection from a beneficiary’s creditors; provides protection in the event of a beneficiary’s divorce; prevents the beneficiary from spending the retirement account at one time; provides for beneficiaries who receive government benefits without disqualifying them from those benefits; and permits distributions for minors or incapacitated beneficiaries without the need for court intervention. Because the SRT is a separate document and not part of the regular revocable trust, it avoids confusion for the retirement plan custodian, beneficiary and trustee.
There are a number of complexities involved in estate planning with retirement accounts. To find out more about Standalone Retirement Trusts, please contact our office.
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