Why Do I Need a Stand Alone IRA Trust?

“I already have an revocable living trust, why do I want yet another trust? ” This is a common response I hear from clients and professionals at mention of these trusts. However, there are two very good reasons for this trust: Protection and Stretch-out.

PROTECTION: Clients may be unaware that although an IRA is a protected asset when the client is the owner, those protections evaporate once the IRA passes to a child or other individual beneficiary and can also be eroded upon inheritance by a spouse. The lack of protection leaves the IRA vulnerable to a child’s spouse in a divorce, makes the IRA available to be taken by a child’s creditors or bankruptcy court, allows the child themselves to cash in the IRA for their immediate (and often unwise) use, and can create eligibility issues for disabled or elderly beneficiaries who rely on government benefits such as Medicaid or Social Security.

STRETCH-OUT: An IRA trust ensures that the asset will be stretched out and payments made in the proper time ensuring allowing the IRA to continue to accumulate interest and grow in value. Many of today’s IRA are only one facet of a clients current retirement plan but in the future often become a child’s only source of retirement funds making it more important than ever to conserve the growth potential.

For more information on these trusts, please view the detailed description set out under our estate planning page.

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