What Happens to Your Retirement Account After You’re Gone?

Picture this: you’ve spent decades building up your individual retirement account (IRA), diligently socking away your hard-earned money so that your golden years can shine even brighter. You’ve named your loved ones as beneficiaries, envisioning the legacy of security you’ll leave behind.

But what happens to your IRA when you’re no longer here to safeguard it?

In many cases, the story might seem straightforward: your IRA passes to your beneficiaries. Yet, here’s where those “what-ifs” start to sneak in.

What if your beneficiary gets sued?

What if they go through a divorce and part with a significant chunk of the IRA?

What if they are financially inexperienced and spend it all too quickly?

These scenarios are more common than you might think, and the consequences can be devastating. Enter the Standalone Retirement Trust, a powerful estate planning tool that might just be your safeguard against such undesirable “what-ifs.”

The Standalone Retirement Trust

A Standalone Retirement Trust (SRT) is your financial parachute. It’s a legal entity that can serve as the designated beneficiary of your retirement account, ensuring that your hard-earned savings are shielded from unpredictable life events and costly missteps.

How the SECURE Act Changed the Game

The introduction of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019 caused a considerable shift in retirement planning. It eliminated the “stretch” IRA for most non-spouse beneficiaries, imposing a ten-year distribution limit on inherited IRAs. 

This means that your beneficiaries could face accelerated income tax obligations, and push them into a higher income tax bracket, potentially reducing the amount they ultimately receive from the inherited retirement account compared to your initial expectations.

However, the SECURE Act left a generous loophole for those with Standalone Retirement Trusts. When structured correctly, the SRT allows your beneficiaries to maintain inherited IRAs over a more extended period, consequently reducing the tax burden and preventing hasty, regrettable expenditures.

The Advantages of an SRT

Standalone Retirement Trusts offer several advantages:

• Asset Protection: Shield your IRA from creditors, lawsuits, or divorces that might befall your beneficiaries.
• Control: Specify the terms of IRA distributions, allowing for gradual, tax-advantaged growth.
• Financial Literacy: Instill wisdom in your heirs by providing a controlled environment for wealth management.
• Minimized Tax Impact: Carefully drafted SRTs can minimize the tax liability for beneficiaries, ensuring more of your hard-earned wealth is passed on.

Is a Standalone Retirement Trust Right for You?

The question of whether you should establish a Standalone Retirement Trust is a personal one. Yet, several scenarios make it an incredibly compelling option:

• You Have Significant Retirement Savings: If you’ve diligently accumulated substantial retirement assets, protecting them from creditors is paramount.
• You Want to Safeguard Your Beneficiaries: If you worry that your beneficiaries might face lawsuits, divorce, financial irresponsibility, or the implications of the SECURE Act, an SRT offers a robust shield.
• You Have Beneficiaries Who Depend on Governmental Assistance: Inheriting an individual retirement account could jeopardize their eligibility for needs-based governmental aid. Fortunately, an SRT can be specifically designed to prevent such disqualification.
• You’re Married with Children from a Previous Marriage: If you make your spouse the primary beneficiary of your retirement account, it’s possible that they could, whether intentionally or unintentionally, disinherit your children from that previous marriage, even if your children are named as the backup beneficiaries. To circumvent this, consider naming your spouse as the lifetime beneficiary of an SRT and arrange for your children from the previous marriage to inherit what remains after your spouse’s passing.
• Legacy Preservation: If leaving behind a lasting financial legacy is a priority, the SRT can ensure your assets are carefully managed for generations to come.

Your retirement savings represent a lifetime of dedication. Ensure that your IRA outlasts you, passing on its full potential to the generations that follow.Don’t wait for the “what-ifs” to become reality. Secure your financial future with a Standalone Retirement Trust and give yourself peace of mind. At Hermance Law, we’re here to guide you through the process. Contact us today and take the first step toward safeguarding your hard-earned wealth.