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Stand-Alone Retirement Trusts in Charleston

Charleston Stand-Alone Retirement Trusts 

Because retirement accounts, unlike many other assets, are subject to income tax, if you inherit an IRA or 401(k), you will have to pay income tax when you withdraw money from the account.

In general, you can access money from an inherited IRA in the following ways:

  • Withdraw the whole amount at once as soon as possible
  • Withdraw everything within 5 years after your benefactor’s death
  • Withdraw the money over your expected lifespan

Since the more slowly you withdraw the money, the less tax you have to pay annually, and the more time you have for tax-deferred growth, most people are advised to use the third method.

There is, however, an alternative method that will save you in terms of taxation: establishing an Stand-alone Retirement Trust, or an “SRT” for short. An SRT is a special type of revocable living trust designed to hold your retirement account in keeping for the benefit of your loved ones after your death. You can even create various subtrusts within the SRT agreement for each of your beneficiaries, including your spouse.

How do SRTs work?

While you cannot legally put your retirement accounts in a trust while you are alive, you can name a trust as the beneficiary of these accounts. By doing this, you can both protect your retirement assets from taxation and control the distribution of those assets after your death. It is even possible to establish subtrusts within the SRT to benefit particular beneficiaries, including your spouse.

The Importance of Designating Your Beneficiary

There are several reasons that it is essential to work closely with a knowledgeable estate planning attorney when setting up trusts. For one thing, there are a great many types of trusts and the differences between them may be confusing. For another, if not established properly, your trusts may cost your heirs to pay more in both income and estate taxes than you ever intended.

Our attorneys are all well-prepared to tailor your beneficiary designations to meet your own particular needs. Most commonly, beneficiaries are spouses, children, grandchildren or other loved ones. For many people, however, beneficiaries may include trusts and charities as well, sometimes in combination with close individuals.

Naming a Trust as Beneficiary

It is not only possible to name an SRT as a beneficiary; it is also possible to designate the trust as either the primary or contingent beneficiary. You may, for example, name your spouse as the primary beneficiary and the SRT as the contingent (secondary) beneficiary. It is extremely important that you have a capable attorney to help you with this procedure, since, if the trust agreement is flawed, the whole account balance may have to be withdrawn within 5 years of your death or the designation of the trust as beneficiary may actually speed up the income tax hassles.

When an SRT Divides into Shares

Often, when you die, your living trust divides into shares. To illustrate, suppose you have an SRT and the trust agreement provides that when you die the trust’s assets are to be divided equally among your three children. Disturbing questions may remain, for example: Is the separate account rule available to each of your three children as beneficiaries of the trust? Must the required minimum distribution be paid over the life expectancy of the oldest child or may each child use his or her own life expectancy?

One of our skills as estate planning attorneys is to make sure that we correctly establish designated shares on the retirement account beneficiary form, instead of in the SRT agreement. This is because if you want the shares you pass to your children to be designated as separate accounts, you must either name each child as a beneficiary or create a separate trust for each of them. Naming your trust as beneficiary will not get the job done.

As any competent attorney will tell you, when you establish an SRT and designate its beneficiaries, you must pay close attention to both tax and non-tax consequences. Having a well-informed estate planning lawyer at your side can make an enormous difference in how you and your loved ones make out financially. At Wiles Law Firm, LLC, you can trust that we are able to tackle complex trust arrangements and avoid all legal and financial pitfalls. Contact us to schedule a consultation today.

Wiles Law Firm, LLC helps clients with their estate planning needs in Charleston, South Carolina and the surrounding areas such as West Ashley, Summerville, North Charleston, Mount Pleasant, and John's Island.

Information on this website is not legal advice. Further, viewing of the enclosed information does not create an attorney-client relationship with Wiles Law Firm, LLC. Matters will be handled by attorneys who primarily practice out of our office in Charleston County located at 852 Lowcountry Blvd., Ste. 101, Mt. Pleasant, SC 29464. M. Emerson Wiles, III is the attorney responsible for this advertisement.

Any result Wiles Law Firm, LLC may achieve on behalf of one client in one particular matter does not necessarily indicate similar results can be obtained for other clients. Please contact a South Carolina estate planning attorney or one of our attorneys with Wiles Law Firm, LLC for a consultation regarding your unique estate plan.

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| Phone: 843-718-0232

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