Planning Strategies for Retirement Plan Assets: The Retirement Plan Trust
Your retirement plan assets are likely some of the largest assets you own. Because retirement plan assets are subject to complex regulations, planning for how these assets will be distributed at your death is important. Strategic planning can prevent major tax consequences down the line for your beneficiaries, as well as provide some additional safeguards. Setting up a Retirement Plan Trust for the disposition of retirement plan assets provides several advantages. Here are three of the key advantages.
Key Advantage 1 – Tax Strategy
Tax-deferred retirement plans pose unique planning considerations because unlike other assets, the withdrawals are taxed as income to the recipient. In other words, to the extent the asset has grown tax-free, the government still needs to take its cut. If a beneficiary receives the asset outright at your death and cashes it out, the tax consequences will be severe.
Additionally, the beneficiary will be required to take the Required Minimum Distribution each year. Through a retirement plan trust, you can control the disposition of the IRA through the trust’s terms and ensure that the beneficiary receives the maximum stretch-out and, therefore, the best advantage because the income is received over as much time as possible while the remining principal continues to grow and enjoy tax-deferred status.
Key Advantage 2 – Asset Protection
While you’re alive and the funds remain in the retirement account, the asset enjoys a high level of creditor protection. If the retirement account asset passes outright to your beneficiary, your beneficiary typically loses this creditor protection. This means that the asset may be subject to a divorce settlement, to a plaintiff in a lawsuit against your beneficiary, or even to a bankruptcy creditor. But with a retirement plan trust, the asset protection features can be passed along to your beneficiary.
Key Advantage 3 – Additional Safeguards
Finally, the Retirement Plan Trust can prevent the beneficiary from cashing out the retirement plan or from taking distributions that exceed the annual Required Minimum Distribution. Whether due to brash irresponsibility or an inadvertent mistake, either action can result in significant tax consequences. A Retirement Plan Trust is like a guardrail that ensures your beneficiary receives as much of the that money you worked hard for as possible.
The Retirement Plan Trust is a great strategy for meeting your estate planning objectives and is often the right solution. But everyone’s circumstances are unique. If you’d like to find out if a Retirement Plan Trust meets your needs, Wilson Law PLC is here to help. Call us today at 866-603-5976 to set up your complimentary meeting or fill out our contact form and we’ll call you to schedule a meeting so we can get to know each other.
