While you are alive the money in your retirement account enjoys a special status. We call that status asset protection. This means the money is immune from lawsuits and creditor claims which may or may not be fair. The great thing about your retirement accounts is that you can pass any unspent money to your loved ones, great idea. However, as soon as you do the money loses that special status called asset protection. What does that mean? One lawsuit against your child, a divorce, car crash, your child the doctor being sued for an unfair malpractice claim, all the sudden the loved one’s inheritance: GONE!
There’s a great answer for this. It’s a special trust that is specifically designed to receive retirement account assets. This special trust is designed to protect inherited assets from the creditors of your beneficiary. I will show you what I’m talking about here.
You fill out a beneficiary designation for somebody to get whatever is left of your retirement plan. The balance of the plan could be a substantial amount of money. The person you designate as the beneficiary is the one we are concerned about here. The money in their hands loses the special status called asset protection granted to retirement assets.
Probably you are thinking it would make sense to protect a retirement account. Here are the top five reasons I think you are absolutely correct.

  1. Between you and your spouse there is a substantial amount of retirement plan money. Your spouse can use a special trust to shield one or the other from creditors.
  2. We all probably have a loved one who is less than prudent with any asset they receive. Anyone concerned about this sort of a beneficiary should consider a special trust so you can provide continuing oversight and instruction on what and when the less than frugal beneficiary should receive assets.
  3. Each spring across the country hundreds of law schools are unleashing new personal injury lawyers out into the world. If your beneficiary is part of a lawsuit or might get divorced or file bankruptcy one of these special trusts can protect the assets they inherit and deny those creditors your assets.
  4. Someone you love receives government benefits. If one of your beneficiaries receives needs-based government assistance, you need to know this. In whatever way that beneficiary receives that asset directly you could blow their needs-based government assistance. They won’t requalify for the assistance until all of the assets are spent down.
  5. You are remarried with a blended family and children from two families. In this situation you will always need careful attention to the detail of the beneficiary designations. It will have to be kept up-to-date. In addition to that your current spouse could unintentionally disinherit children from her first marriage. With the retirement trust you can take care of your spouse during their lifetime and all of the children after that.

It takes a long time and a lot of hard work to create and grow wealth these days. It takes discipline and consistency to build a substantial retirement plan. You’ve done that and you’ve done well at it. The gold digging creditors of your beneficiaries should not be able to take that away. I’s be happy to show you how one of these special trusts can help you protect your assets as well as provide tax-deferred growth. As always the best time to plan is NOW.

If you would like to talk about any of this give me a call.

Doug Thesenvitz