Thursday, January 27, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
Why do retirement plans usually have a standalone trust separate from my revocable living trust?
It is not essential, but most estate planning attorneys recommend having a separate trust for retirement plan assets. There are several reasons. First, there are strict requirements for a retirement plan trust that are inapplicable to revocable living trusts (RLT), and trying to merge the two makes the RLT less flexible than it otherwise can be. Second, advanced IRA trusts can function as accumulation trusts, meaning that they receive annual Required Minimum Distributions (RMD) but do not distribute them to the beneficiary. This could become important if the beneficiary is receiving government benefits and the IRA proceeds would offset those benefits. Third, standalone IRA trusts very clearly state that they meet the requirements of being an IRA trust up front, so the IRA custodian, who must receive a copy of the trust, can quickly determine that the trust is a valid IRA trust. This also prevents the IRA custodian from having a copy of your complete RLT. Fourth, a standalone IRA trust alerts beneficiaries to the fact that IRA assets must be handled differently from most other assets, and thus the beneficiary is less likely to withdraw the account assets and waste the tax-advantaged benefits of the keeping the IRA intact as long as possible. |