Estate Planning And Retirement Accounts

If you have retirement accounts, then estate planning is relevant to you. Inherited retirement accounts typically fall outside of the probate process because the decedent would have elected their beneficiaries and contingent beneficiaries through their retirement plan. The issue for the beneficiaries raised by inherited retirement accounts is that they are considered as income and the beneficiaries are subject to income taxes on the retirement money. The second issue is that if you die owing creditors, the creditors can seize the retirement accounts to pay off your debts.

However, an experienced estate planning attorney, can help establish an estate plan for you that adds a layer of protection for your intended beneficiaries from creditors and income tax. Designating a trust as the beneficiary of your retirement accounts is one way to accomplish this goal.

Many non-IRA and employer-sponsored retirement plans like 401(k)’s will require that the beneficiary withdraw the monies within so many years of the employee’s death regardless of the beneficiaries’ desires. The issue with this requirement is that once the beneficiary withdraws the monies, he can expect a tax bill. IRA’s are more flexible and allow the beneficiary to allow the monies to grow in the account for the life expectancy of the beneficiary and the beneficiary has more time to plan to pay the income taxes.

By properly setting up the trust, the trust will allow your beneficiary to treat your non-IRA and employer-sponsored retirement plans much like an IRA. Further, the beneficiaries of both your non-IRA and IRA accounts will inherit the accounts free and clear of any of your creditor claims.

Setting up a trust can become complex, and a trust that is set up improperly can subject your beneficiaries to the very liabilities that you intended to avoid. If you have questions regarding setting up a trust for your retirement accounts, contact estate planning attorney, Michael S. Burnett at 678-905-4450 Ext. 3. MICHAEL S. BURNETT, LLC