Legal Tip of the Week – 2/1/17!

Individuals of different net worth have one thing in common: they are all protective of their retirement assets, no matter the amount.  Most of these individuals also realize the importance of naming a spouse as the primary beneficiary of these retirement accounts, so the spouse can roll them over into his or her name and preserve the tax deferral for the duration of the life expectancy of the spouse.  When it comes to contingent beneficiary designations however, most people are stumped.  In my experience, they either leave this section blank, or end up naming their children as outright beneficiaries.  This may be fine if you trust your kids to do the right thing i.e. inherit the IRA and keep it there for as long as is permissible to maximize both the stretch and the compounding interest. But if you think your child might cash out at the next available opportunity to buy that dream car or take an exotic vacation, then you might consider having the assets go into a testamentary trust set up for your child under your Last Will & Testament or Revocable Living Trust (“RLT”).  In these situations, consulting a specialized estate planning attorney is prudent.

Your retirement accounts are non-probate assets so they don’t pass under the Will or RLT.  Instead, they pass by beneficiary designation.  Your attorney will guide you on how to title the beneficiary designations on your retirement accounts so that the child’s trust is the designated beneficiary and not your child outright.  Additionally, if you have children who are spread out in ages, or if you want to name your grandchildren as beneficiaries, then you might want to consider a Stand-Alone Retirement Trust, which would preserve the maximum stretch available based on each individual beneficiary’s life expectancy while ensuring that these assets remain protected in trust – out of the reach of the beneficiary’s creditors, a divorcing spouse, or even themselves!