Your retirement account provides asset protection during your lifetime, but as soon as you pass that account to a loved one, that protection evaporates. When your spouse, child, or other loved one inherits your retirement account, creditors have the power to seize it and use the funds to satisfy their claims. This means one lawsuit and POOF!—your life-long, hard-earned savings could be gone. Your loved one could be left penniless. Fortunately, there is a solution to this problem. A special trust called a standalone retirement trust (SRT) can protect inherited retirement accounts from your beneficiaries’ creditors.
You want your loved one to benefit from your retirement account, not the creditors. If you or your beneficiaries fall into any of these five categories, you should seriously consider using an SRT to protect your retirement accounts:
- You have substantial combined retirement plans. Loved ones can use an SRT to shield the retirement plans from creditors.
- You believe your beneficiary may be less than frugal with the funds. You should consider an SRT if you are concerned about how your beneficiary will spend an inheritance, as you can provide oversight and instruction on how much they receive and when.
- You are concerned about lawsuits, divorce, or other possible legal actions. If your beneficiary is part of a lawsuit, is about to divorce or file for bankruptcy, or is involved in any type of legal action, a properly drafted SRT can protect the inherited retirement accounts from those creditors.
- You have beneficiaries who receive assistance. If a beneficiary receives or may qualify for, a needs-based governmental assistance program, it is important to know that inheriting an individual retirement account may cause the beneficiary to lose those benefits. An SRT can be drafted to avoid disqualification.
- You are married with children from a previous marriage. If you are married and have children from a previous marriage, naming your spouse as the primary beneficiary of your retirement account could allow your spouse to intentionally (or unintentionally) disinherit your children, even if you named your children as the contingent (backup) beneficiaries on the account. You can avoid this by naming your spouse as the lifetime beneficiary of an SRT and then having the remainder pass to your children from a previous marriage after your spouse’s death.
You have worked hard to protect and grow your wealth–let’s keep it that way.
You worked hard to save the money in those retirement accounts, and your beneficiaries’ creditors should not be able to take it from them. We are here to help. Please contact us to schedule a time for us to show you how an SRT can help you protect your retirement accounts for your loved ones.
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Kevin Snyder is a husband, father, and an Orange County estate planning attorney and elder law attorney at Snyder Law, PC in Irvine, California. He's all about family and passionate about estate planning, elder law, and veterans. He founded Snyder Law to help people be prepared and have the peace of mind they are protecting their families and aging parents for when life happens.