Planning critical for those with large retirement plans

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This article is for those who have substantial retirement accounts. In these situations, the need to plan ahead is critical.

The first thing to know is that if you do not plan ahead, your children could lose your retirement plan to creditors and divorce, and could, potentially, lose income tax deferral.

Neither your will nor your trust governs what happens to your retirement plans. Rather, the beneficiary designation on file with the plan administrator or custodian (Schwab, Wells Fargo, Merrill Lynch, among others) controls.

The United States Supreme Court has held that inherited retirement plans are not protected from lawsuits if they are left to loved ones free of trust. If left to a trust, the trust needs to be carefully drawn to ensure rollover possibilities are not wasted.

This means, if you wish to leave your retirement plan(s) to loved ones in a way where it will be protected from lawsuits and divorce, if they are ever sued, then you need:

  1. A trust for the loved ones, and
  2. Your beneficiary designation needs to name your trust, perhaps, after your spouse.

For instance, let's say Jeremy and Emily are happily married. Jeremy has two children, Jeremy Jr. and Janice.

Jeremy wants to make sure his daughter-in-law will NEVER get his money. Janice is a surgeon and she has substantial exposure to lawsuits.

Jeremy also wants to make sure Emily will NEVER lose his retirement assets and other assets to a lawsuit.

In these cases, Jeremy will need:

  1. A trust for Jeremy Jr. and Janice, and
  2. His beneficiary designation needs to name his trust, perhaps after he names Emily as his primary beneficiary.

Good planning is critical to success in this area. The deferral of taxes and the asset protection can provide you and your family with peace of mind.

Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. www.mwinnesq.com

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