Protecting Your IRA with a Standalone Retirement Trust

A Standalone Retirement Trust can be an incredibly useful estate planning tool. Suppose you have an Individual Retirement Account (IRA) which is not fully depleted at the time of your death. Where do you want that money to go, and how do you want it to be distributed? While you can name a specific beneficiary (or beneficiaries) of your remaining IRA funds, you should consider whether or not you want the beneficiary to be able to receive the IRA proceeds in a lump sum payment after your death.  Negatives of the lump sum approach include unwise spending decisions and significant tax liability.  

Upon your death, generally speaking, the IRA plan administrator will contact the beneficiary and ask how he or she would like to receive the proceeds—as a lump sum or through smaller payments over a period of time. If you do not feel comfortable with the beneficiary receiving the money all at once—perhaps he or she is still very young or has a history of being irresponsible with money—you might prefer that he or she not have the option to receive the funds in a lump sum.

In such situations, a Standalone Retirement Trust might be a useful tool to consider. A Standalone Retirement Trust is a trust that is created for the sole purpose of serving as the beneficiary of the remainder of your IRA funds (and other qualified funds, e.g. 401(k)). Thus, the trust will be funded after you pass with whatever is left of your retirement assets. Then, the trustee of the Standalone Retirement Trust will oversee the distribution of the funds to your heir(s) in a manner you see fit.

By utilizing a Standalone Retirement Trust you will be able to have significantly greater control over the manner in which your remaining retirement funds are distributed to your loved ones, rather than just control who will receive the funds after you die—as is the case with leaving your IRA through a simple beneficiary designation.

Depending on your circumstances, some other useful benefits of a Standalone Retirement Trust may include:

  • Asset protection in the event of a divorce
  • Asset protection from creditors
  • Generation-skipping tax benefits
  • Protects the beneficiary with respect to government needs-based benefits
  • Alerts the beneficiary to the tax consequences of an immediate cash out
  • Allows for the beneficiary’s tax obligations to be stretched over a period of time
  • Alleviates the need for a court appointed guardian for minor beneficiaries
  • Asset protection in the event the beneficiary becomes incapacitated
  • Allows for successor beneficiaries

The IRS has very stringent requirements for Standalone Retirement Trusts. Therefore, it is vital that you seek out the assistance of a professional estate planning attorney who is familiar with their complexities and nuances. If you are interested in created a Standalone Retirement Trust, please contact The Law Offices of John Mangan today to learn how we can help!

Written by John Mangan, Esq.

John Mangan, Esq.

I’m an attorney in Palm City, FL, and I serve clients throughout Martin County, including Stuart, Palm City, Hobe Sound, and Indiantown, as well as those in St. Lucie County, the Treasure Coast, Palm Beach County, and other parts of Florida. The Law Offices of John Mangan, P.A., is an innovative firm providing estate planning services to clients in Florida. We focus primarily on wills, trusts, asset protection, guardianship, and probate administration.