Retirement Trusts:

Many questions arise concerning the treatment of retirement accounts as they relate to estate planning due to potential tax benefits and consequences. Depending on the size of your retirement account and your estate planning goals, a Standalone Retirement Trust (SRT) may be beneficial as part of your overall estate plan. The Standalone Retirement Trust is an estate planning tool that is designed to permit a beneficiary to “stretch” the required minimum distributions (RMDs) following the death of the account owner, allowing the principal to grow and resulting in less taxable income each year for the beneficiary. The SRT is carefully drafted to ensure it meets all of the Internal Revenue Service regulations in order to avoid a mandatory liquidation of the IRA over a period of five (5) years, which could result in a significant tax bill.

Some other advantages of an SRT are that it provides protection from a beneficiary’s creditors; provides protection in the event of a beneficiary’s divorce; prevents the beneficiary from spending the retirement account at one time; provides for beneficiaries who receive government benefits without disqualifying them from those benefits; and permits distributions for minors or incapacitated beneficiaries without the need for court intervention. Because the SRT is a separate document and not part of the regular revocable trust, it avoids confusion for the retirement plan custodian, beneficiary and trustee.

There are a number of complexities involved in estate planning with retirement accounts. To find out more about Standalone Retirement Trusts, please contact our office.

Life Insurance Trusts:

A life insurance trust is a trust designed to pass life insurance proceeds to your beneficiaries free of estate tax. A life insurance trust is an irrevocable trust, meaning that it cannot be amended and is referred to as an ILIT (irrevocable life insurance trust) or wealth replacement trust. The life insurance policies held by the trust are considered to be owned by the trust and not by the trustmaker (settlor), so the proceeds would not be included in the settlor’s gross estate upon his or her death.

In order for the ILIT to work and for the proceeds to not be included in the settlor’s gross estate, the settlor must give up control and he or she cannot be the trustee or beneficiary of the ILIT, cannot change the beneficiaries and cannot borrow against the insurance policy. The settlor makes gifts of cash to the ILIT to pay the premiums on the life insurance. These completed gifts reduce the settlor’s taxable estate and upon the settlor’s death, the proceeds are not included in the settlor’s gross estate for estate tax purposes.

Another benefit of the ILIT is that the life insurance proceeds provide a liquid asset to the estate that can be used by the beneficiaries to help pay estate tax, so they are not forced to sell other, non-liquid assets to pay the estate tax. The ILIT is a complex estate planning tool and it must be drafted with great care by an experienced attorney.

To learn more about the benefits of using a life insurance trust as part of your overall estate plan, please contact our office.

Contact Us For A Consultation

We invite you to schedule a initial consultation with one of our attorneys. Simply call Ball Morse Lowe, PLLC, at 405-701-5355 or contact our office by email.


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