what is a retirement plan trust, old many watching a sail boat

What is a Retirement Plan Trust?


One major part of your estate may be your retirement account. Placing your retirement funds in a trust account is not possible while you are still living. However, there is one trick you can use to ensure your individual retirement accounts are protected, and the funds are distributed according to your wishes.

Retirement plan trusts can be a valuable tool for protecting your estate and giving you control over what happens to your retirement funds after you pass on. Read on to find out more about retirement plan trusts.

What does a Retirement Plan Trust Do?

A retirement plan trust combines the tax benefits of an IRA with the long-term benefits of a trust. It also protects heirs who may not be good at managing money. It isn’t possible to include your IRA in a trust while you’re still living, but what you can do is name a trust as the beneficiary of your IRA. 

Then the trustee distributes funds to your heirs according to your wishes. This allows for small incremental disbursements to prevent heirs who struggle with managing money from bankruptcy. A retirement plan trust also prevents creditors from seizing the assets if your beneficiary should file for bankruptcy.

A Retirement Trust Can Reduce Tax Liability of Your Estate

You can avoid essentially paying double taxes on the transfer of your estate twice by using a retirement plan trust. Let’s say you bequeath roughly $20M to your spouse. They pay estate taxes on roughly $8.3M since only $11.7M is tax exempt in 2021. A few years later, your spouse passes on the remaining $18.7M and leaves it to your child. Your child will also pay taxes on any amount above the estate tax exemption amount. Essentially, your estate has been taxed twice.

If, instead, you leave $10M to your spouse, and name a trust as the beneficiary of the other $10M, you’ll pay no additional taxes on your estate. Your spouse can get staggered distributions to help them with living expenses. If your spouse passes the $10M on to your child, and names them the beneficiary of the trust, you can again avoid paying taxes on the inheritance of your estate.

A retirement plan trust can add the tax benefits of an IRA to your estate plan. It provides the best of both worlds. A retirement plan trust is not for everyone, however, so it’s best to give us a call and let us work with you to find an estate plan that fits your needs.

Estate Planning Services in Chandler, Arizona

At Phelps LaClair, we’ve been assisting individuals with planning their estates for over 40 years. We know how important it is to ensure you have an estate plan that works for you and that may include a retirement trust. We can help you navigate this complex process and prepare you for whatever life might throw at you. 

Contact us to find out more about how to reduce the tax liability of your estate, and how to protect your assets and ensure they’re passed on according to your wishes. We proudly serve Chandler, AZ; Mesa, AZ; Phoenix, AZ; Scottsdale, AZ; and Glendale, AZ. Call us today to see how we can help you plan your estate.



photo by pasja1000 | from Pixabay on 3/3/2021 | used under creative commons license 

Next webinar
starting soon
Free Webinar