Your Estate Plan, Your Trusts, and Your Retirement Accounts

You should read this excellent short column by financial writer Arden Dale of The Wall Street Journal, “Minding Retirement Accounts in Estate Plans,” on integrating IRAs, 401(k) plans, federal employee Thrift Savings Plan (TSP) accounts, and similar retirement savings accounts into estate and trust plans. The article deals primarily with choosing primary beneficiaries in a way that will minimize estate and income taxes. For most married retirement plan beneficiaries, that will mean choosing their spouses to receive the plan proceeds outright and free of trust, via a rollover after the first spouse’s death.Safeguard Your Retirement Plan For Children

However, trusts continue to be important contingent, or secondary, beneficiaries, especially for larger plans. The ability of your children or grandchildren (and in some cases, your spouse) to compound retirement plan investments over a long period of time makes IRAs and similar plans one of the most valuable tools for wealth succession planning for your family. Well-drafted retirement plan trusts help ensure that such plan “stretch-outs” will be administered property. I will normally recommend a separate IRA trust if you wish to

  • preserve and guard retirement plan assets from your beneficiaries’ “predators and creditors” – including remarriage spouses, your children’s and grandchildren’s creditors, and their improvidently-chosen spouses;
  • control distributions after your death (discourage or prevent a beneficiary from withdrawing all of the assets he inherits from you at once, absent a very good reason);
  • direct otherwise-reluctant retirement plan administrators to divide an account into separate accounts for your children;
  • limit payouts to any special-needs beneficiaries (including those who become disabled after your death) to protect ongoing government benefits; and
  • ensure that your retirement plan money stays in your family.

Generally speaking, if you and your spouse’s combined retirement plan assets exceed $250,000, it will be cost-effective for us create stand-alone retirement plan trusts for each spouse in addition to your Revocable Living Trust. If you’d like to arrange an appointment or a phone call, or receive more information via email, please call or email me, or use the contact tool in the sidebar.

(Updated: April 2017)

7 Major Errors in Estate Planning – A Financial Advisor’s View

These days, access to estate planning counsel and financial advisors is no longer restricted to the very rich.

(Well, there was never actually an exclusive club of rich folks who kept the secret rituals secret, but it used to cost a lot more than it does today. And in the good old days, only the very rich had to concern themselves with income taxes and death taxes.)

These can burn you.But even with the increasing democratization of trust and estate planning, there continues to be a large group who, somehow, just don’t get the word. Forbes Online contributor Rob Clarfeld posted an article in April entitled “7 Major Errors In Estate Planning.” His top seven aren’t necessarily the same seven I’d pick (I’ll put up my own short list one of these days) but they’re awfully common nevertheless. Here are the bullet points in Rob’s list – his comments are at the link.

  1. Not having a plan at all (aside from the “plan” that legislators have written for you).
  2. Trying to do everything yourself.
  3. Failing to consider how IRA and life insurance beneficiary designations and improper titling of assets can affect your planning.
  4. Failure to understand the interplay between gift taxes, death taxes, and life insurance.
  5. Allowing your annual gift tax exemptions to go to waste.
  6. Failing to take advantage of the $5 million 2012 gift tax exemption amount scheduled to sunset on December 31. (Update – it’s back for 2013.)
  7. Leaving assets outright, rather than in well-designed “spendthrift” trusts, to adult children.

Are you guilty of any of these planning sins? If you know you are (or even think you are), contact me for more information. You can use the form in the sidebar.