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Naming a Stand-Alone Retirement Legacy Trust as Beneficiary

Posted by Gregory Poulos | Jan 30, 2018 | 0 Comments

Naming the right beneficiary for your tax-deferred retirement accounts may be one of the most important decisions you make with regards to your estate plan. You want to continue the growth of those accounts for as long as possible, while still protecting the financial future of your beneficiary(s). Naming a younger beneficiary, like a grandchild, can stretch the wealth-compounding potential of the accounts, but naming a beneficiary outright does have its risks.

The disadvantages of naming a beneficiary outright:
• Distributing fund to a minor means the distributions will be paid to a guardian and you must have faith in the guardian's good intentions. In addition, when the child turns 18, the money is theirs to do with as they wish — depending on the child, this could be good or turn into a disaster.
• Your beneficiary may abuse the privilege and take larger distributions or even cash out the account, thus destroying your intentions for long-term growth of the account.
• If your beneficiary becomes incapacitated, the court may step in and interfere with your plan for fund growth.
• If your beneficiary has special needs, any additional income may cause him or her to lose their eligibility for valuable government benefits.
• A spouse is under no obligation to follow your wishes and can name a new beneficiary.

The solution to counter these problems is to name a Stand-Alone Retirement Trust as your beneficiary. It provides you with more control on what happens to the assets. A carefully crafted trust can meet all the IRS requirements for a qualified beneficiary. After you die, distributions are paid by the plan into the trust for the benefit of your heir or heirs. It can pass funds directly on to your heirs (a conduit trust) or the trust can accumulate and grow these funds (an accumulation trust). A trustee can then pay out the assets over time according to your instructions. A perfect example is allowing the trust to only pay for certain eventualities — college tuition, a home down payment, unexpected medical bills or any other event you might want to designate to trigger the advance of funds to your beneficiaries.

The advantages of a Stand-Alone Retirement Trust
• Since there is no named beneficiary other than the Trust itself, there is no risk of court interference should your beneficiary become incapacitated.
• The trustee makes the decisions on fund distribution on your behalf should something happen to your beneficiary.
• There is no risk of your heirs cashing out too soon and taking a huge tax hit. Your ongoing control assures the continuing power of long-term, asset-protected, tax-deferred growth of your requirement account.
• The trust protects your funds from becoming subject to creditor claims.
• The trust allows you to maintain a long-term relationship with your trusted financial advisor by appointing him or her as trustee and protecting your beneficiary from making the wrong choice of financial advisor.
• You maintain control of retirement plan proceeds even if your beneficiary unexpectedly dies before the accounts are paid out.

A Stand-Alone Retirement Plan Legacy Trust is a powerful estate planning technique that allows you to watch over your family and continue the growth of funds even after you are gone. To evaluate this strategy as part of your estate plan, you should consult with a qualified estate planning attorney who has experience in this type of planning.

About the Author

Gregory Poulos

Meet Greg PoulosAn Experienced Estate Planning & Business Attorney serving the Phoenix AreaGregory Poulos counsels clients on the best strategies for accomplishing their estate planning and business goals. Greg starts by “Putting His Clients at Legal Ease” so that they understand the legal issues...


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