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Charleston Estate Planning & Asset Protection Blog

Friday, December 8, 2017

Do I Need a Stand Alone Retirement Trust?

A Stand Alone Retirement Trust can be a smart legal estate planning tool for many people and because of the strict legal requirements to create one. As Individual Retirement Accounts have exploded in popularity, especially in recent years, many people are concerned about the best way to handle the money that is remaining in their accounts after they have passed. 

For many, a Stand Alone Retirement Trust can be the best estate-planning tool for this type of situation. By allowing more control over their money and assets as well as favorable tax treatment, these new trusts have become very popular.  This is not a DIY estate-planning tool though, so you should enlist the help of an experienced Stand Alone Retirement Trusts lawyer to assist you in crafting one.

What is A Stand Alone Retirement Trust?

A Stand Alone Retirement Trust is basically a “trust fund” that is created for the sole purpose of holding any excess money left from an individual retirement account after the person passes away.  This would apply to 401k, some qualified pension funds, among other retirement accounts. When the person passes away, any remaining money is immediately moved into a trust account. There, a Trustee will distribute the remaining money and assets that were once in the retirement account, to the appropriate heirs and beneficiaries. The person creating the trust can direct the Trustee with a specific list of instructions or merely a list of priorities and factors to use when distributing the assets.  

What are the Possible Benefits of a Stand Alone Retirement Trust?

There are two main benefits of a Stand Alone Retirement Trust:

  1. More control. A person with a Stand Alone Retirement Trust will have much more control over how their money and assets are distributed compared to someone who passes away with just a traditional retirement account. In a trust, the person designates a trustee who enacts out has the responsibility to distribute the assets and money according to the now-deceased person’s will. They can be distributed to different people, at different times, and even according to certain limitations. In comparison, a normal retirement fund usually just allows a person to designate a beneficiary – which gives everything remaining in the account to a single person. 
  2. Tax benefits. Because there is not an immediate “cash out” the tax treatment of a stand-alone trust can be much better. This is especially beneficial when dealing with large estates – which can have astronomically high tax bills if they reach the point of an estate tax. Another way a lump sum payout can have detrimental tax effects is if it is high enough to reach the “gift tax” where all income derived afterward is subject to a tax windfall. Either way, the most efficient way to distribute your assets from a tax-perspective can always be maximized through a trust’s period payments rather than a lump sum cash out. 

The requirements for creating a stand-alone retirement trust are very specific. Therefore, if you are looking to gain the advantages of a stand-alone retirement trust, you should request a consultation with one of our South Carolina trust administration lawyers. 

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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.

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