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Savings Opportunity: Retirement Benefit Trust Planning

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Protecting Inherited Retirement Assets and Preserving A Powerful Income Tax Deferral Savings Opportunity

Why consider protecting your 401(k), IRA or other retirement assets?
Unfortunately, many, if not most, parents and other retirement plan owners receive poor advice from their advisors to “simply” name children or other persons as outright beneficiaries of IRAs, 401(k)s or other retirement plans (hereinafter “retirement plan”). The common result is retirement plan beneficiaries losing fundamental creditor protections, suffering from accelerated income taxation and losing millions of dollars in potential income tax deferral savings (even with smaller to moderate sized retirement plans). So, the “simple” answer is not always the “right” answer.

What are common problem scenarios of “simply” naming outright beneficiaries of retirement plans?
Much to the surprise of many clients and their advisors, under Illinois and federal bankruptcy laws, inherited IRAs (e.g., a child receiving a retirement account from a deceased parent) are generally unprotected from the child’s creditors. For example, if a single or surviving parent dies leaving an inherited retirement plan outright to a child, and the child subsequently loses in a lawsuit, the retirement plan’s current and tax deferred (“Stretch-Out”) value can be lost to the child’s creditors. Another significant problem is outright beneficiaries making poor financial decisions by voluntarily cashing-out inherited retirement plans thereby accelerating income taxation and losing the incredible “Stretch-Out” income tax deferral opportunity. Even with smaller to moderate retirement plans, the “Stretch-Out” can be worth millions of dollars. So, protecting retirement plans from both involuntary events (i.e., lawsuits and creditor attacks) and voluntary mistakes (i.e., bad beneficiary financial decisions and spending habits) is the “best” path.

How can inherited retirement plans and the “Stretch-Out” be protected?
The “best” answer is Retirement Benefit Trust planning. For more information, please call Kelleher & Buckley, LLC at (847) 382-9130 or contact us through our website.

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