Articles Tagged with Retirement Plan

What Types Of Trusts Are Useful In Protecting Retirement Plans?

There are a number of schools of thought here. In our practice, we feel a revocable living trust is not a good vehicle to handle retirement plans. Often these are not drafted with the appropriate language to comply with the IRS service regulations to be what’s called a “see-through trust”. A Retirement Plan Trust is specifically drafted to comply with the service regulations and meet all the criteria so that if this trust is designated as the beneficiary, you will be able to preserve the tax deferral for those named beneficiaries to get the stretch advantages.

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No, it does not. It transfers by beneficiary designation. Much like life insurance that goes to the individual named in the policy, the retirement plan goes to the individual named on the beneficiary designation in the plan document. If you don’t have a beneficiary designated or the individual that you designated is deceased, the account value can wind up in your probate estate; and if this happens, the only choice is that all the taxes are due right away, and there is significant inflexibility. But in general, it will avoid probate.
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A lot of people do not understand the landscape of how retirement plans pass to beneficiaries. They do not necessarily understand the particularities and technicalities of how one inherits and their choices presented by fund custodians. IRAs have only been around since the mid-1970’s and we are only beginning to see multiple generations inheriting them. The lifetime distribution option (stretch IRA) is an even more recent addition to the mix so the idea of not just simply cashing it out is relatively new. Whenever you have these options and choices, people just aren’t savvy enough. Continue reading