Those with significant assets they wish to control and protect once they
pass to the beneficiary should seriously consider setting up a revocable
living trust. You may have heard them referred to as an IRA Trust, IRA
Living Trust, Standalone Retirement Trust, or an IRA Stretch Trust. Regardless
of the exact terminology, an IRA Trust provides you with the most control
over your investments prior to your death and the most protection to your
beneficiaries after your death.
Your basic IRA account is protected from creditors while you are alive,
but as soon as the funds are transferred to a beneficiary upon your death
this protected status is no longer in force (Clark v. Rameker, 134 S.Ct. 2242 (2014)). However, with an IRA Trust you can create a sub
trust specifically for an individual beneficiary, which will protect them
from divorcing spouses (the usual culprit) as well as creditors and lawsuits.
This sub trust continues to protect the beneficiary as long as the funds
remain in the trust and are distributed according to the discretion of the
Trustee. In other words, the assets are safe from creditors should the beneficiary
file bankruptcy, get sued, or face a divorce.
The IRA Trust can even protect the beneficiary from his or her reckless
spending habits, incompetent investing, intrusive spouses, and other poorly
made financial decisions.
Leaving your IRA directly to a beneficiary not only leaves it open to creditors,
it gives the beneficiary the option to immediately cash out the funds
and spend the money as they wish. Under this scenario, the beneficiary
not only loses the opportunity to receive
required minimum distributions (RMDs) over their lifetime, they will also be taxed at 100% of the amount
withdrawn as part of that year's income tax.
Obviously, the benefits of an IRA Trust are many, however, you won't
know for certain how well they will work for your individual investment
plans until you speak with professionals who have your best interests
at heart. At the Law Offices of James C.Shields, you'll work with
professionals in estate planning and probate law. For more information
about setting an IRA Trust in Los Angeles and Orange County, California, please