When you put money away in a retirement account, you can choose someone or multiple people to serve as beneficiaries for that account when you pass away. Then those assets you saved can be put to good use by your loved ones. However, in some cases, it may actually be a better idea to make a trust your retirement account beneficiary. A Washtenaw County trusts attorney can help you learn more about the pros and cons of this option.
When Can it Be a Good Idea to Choose a Trust as a Retirement Account Beneficiary?
When you make a trust a retirement account beneficiary, you can set aside money for a loved one who may not be able to manage the assets on their own. The trust can be the beneficiary, but the funds can be used by a minor child or a loved one with special needs. Of course, all of this would be carefully managed by a trustee that you choose.
Not only does this ensure that the money does not get squandered, but this arrangement can also be beneficial if your loved one relies on government benefits. A special needs trust is not considered income for the beneficiary. So someone can be the beneficiary of a trust while still receiving government benefits like Medicaid, SSI, or housing assistance. If you just leave your loved one a lump sum of money, that can cut off their access to these lifelines.
Leaving your retirement account assets to a trust also avoids the probate process. Probate normally costs your estate money and delays your property from going to beneficiaries. The more of your assets that can avoid it, the better.
What Drawbacks Should I Be Aware Of?
There are some potential complications to this arrangement though. First, you have to worry about minimum distribution payouts on a retirement account, meaning that a certain amount of money must be withdrawn from the account each year. This can cause a beneficiary to lose out on potential interest.
There is also a “10-year rule” established by the recently passed SECURE Act. This requires a retirement account beneficiary to withdraw all of its funds within 10 years. There are some exceptions to this, but it’s something to consider.
How Can an Estate Planning Lawyer Help Me Make a Trust a Retirement Account Beneficiary?
An estate planning lawyer can help you figure out what kind of trust you want to use and then they can help you set it up. They can also help you figure out if this is the best option for the assets in your retirement account. If there’s a better plan, we can find it. Then we will ensure that your estate plan is legally binding and that your family members won’t run into unexpected problems when your assets are distributed later.
Schedule Your Consultation
When you decide to make an estate plan of your own, don’t try and do it all by yourself. Contact Collis, Griffor & Hendra to schedule a consultation with our experienced attorneys. We’ll do everything that we can to help you make a plan that works for you and your beneficiaries.
