Standalone Retirement Plan Trusts are nothing new – they have been around since the early 2000’s when several IRS Private Letter Rulings approved conduit – or pass through – trusts (required to qualify as IRA beneficiaries) and, most importantly, allowed for IRA distributions to be accumulated for the benefit of the beneficiaries rather than “passing through” which once was thought to be required.
Following the SECURE Act, standalone retirement plan trusts are arguably more important than ever. As of 2020, they allow the new dumping of IRAs over 10 years to be retained in trust where they are protected against creditors, predators, and being absorbed too quickly in the hands of the beneficiaries.
Amy and John are inheriting a $1m IRA between them. Amy is going through divorce. John is a spendthrift. Without a trust to receive her half of the IRA, Amy’s spouse may get half of her $500,000. John, who really should save the IRA for a rainy day, is eager to spend all of his $500,000.
Had their parents left them a standalone Retirement Plan Trust, compliant with the SECURE Act, Amy could thumb her nose at the divorcing spouse, and John could have a more secure future. The RPT allows for the accumulation of the required distributions from an IRA in the trust, coupled with discretionary distributions from the trust to the beneficiaries. The discretionary nature of the trust is what provides the protection of the assets in it.
Significant legislation concerning the treatment of retirement accounts called the SECURE Act became law on January 1, 2020. Among other effects, this eliminates the lifetime stretch for [...]
Northeast Estate Planning Guide © Copyright 2020-2024 Timothy B. Borchers
