Your retirement accounts serve as a shield for your assets during your lifetime. However, once you pass them on to a loved one, that protection disappears. Inherited retirement accounts become vulnerable to creditors who can seize the funds to satisfy their claims. This means that a single lawsuit can wipe away your lifelong savings, leaving your loved ones destitute. Fortunately, there is a solution to this predicament: a specialized trust known as a standalone retirement trust (SRT). An SRT can safeguard inherited retirement accounts from the creditors of your beneficiaries.
If you want your loved ones to enjoy the benefits of your retirement accounts, rather than allowing creditors to lay claim to them, it is crucial to consider the use of an SRT. Here are five situations where employing an SRT to protect your retirement accounts is highly advisable:
- You have substantial combined retirement plans: If you have significant combined retirement plans, an SRT can provide a shield against creditors for these plans when they pass to your beneficiaries.
- You are concerned about beneficiary spending: If you worry that your beneficiary may not exercise prudence in managing their inheritance, an SRT allows you to exert oversight and provide instructions regarding the amount and timing of distributions.
- You are concerned about lawsuits, divorce, or other legal actions: In cases where your beneficiary is involved in lawsuits, divorce proceedings, bankruptcy filings, or any other legal issues, a well-crafted SRT can safeguard the inherited retirement accounts from potential creditors.
- You have beneficiaries with needs-based governmental assistance: If a beneficiary relies on or qualifies for government assistance programs based on financial need, inheriting an individual retirement account could lead to disqualification. By incorporating an SRT, you can structure it in a way that avoids jeopardizing their eligibility for such benefits.
- You are married and have children from previous marriage: If this describes you, designating your current spouse as the primary beneficiary of your retirement account might unintentionally disinherit your children, even if they are listed as contingent beneficiaries. To prevent this, you can designate your spouse as the lifetime beneficiary of an SRT and ensure that the remaining assets pass to your children from the previous marriage after your spouse’s passing.
You have diligently worked to safeguard and grow your wealth, and it is essential to maintain that protection. Your retirement accounts should not be vulnerable to the claims of your beneficiaries’ creditors. Give us a call, and we can discuss how an SRT can effectively shield your retirement accounts and provide the security you desire.