As long as you’re alive, you enjoy critical protections for your retirement funds. Specifically, the assets in an IRA or 401(k) are shielded from lawsuits, courts, and creditors. But when you die, these protections evaporate, meaning any retirement assets your loved ones inherit from you can be seized. The good news is that some estate planning provisions can restore legal protections, including standalone retirement trusts (SRTs). This type of trust can provide several benefits, allowing you to ensure that your children or grandchildren enjoy the full extent of the retirement funds you work so hard to accumulate. To learn more about living trust and estate planning options, including the SRT, make an appointment with Max Alavi APC, OC Trusts Lawyer.

How to Protect Your Retirement Accounts

Here is an unfortunate truth about retirement accounts: Once you die and these accounts are passed on to your loved ones, several key legal protections evaporate. These protections are comprehensive during your lifetime, making it impossible for anyone to seize your retirement funds via lawsuit. In most states, these safeguards disappear as soon as your retirement funds are inherited, which means your hard-earned money can be snatched away from your heirs and beneficiaries through the courts and creditors.

Is there anything you can do to prevent this and ensure that your retirement funds remain well-protected even after passing them on to a loved one? The short answer is yes, through effective estate planning.

Estate Planning 101: Start a Standalone Retirement Trust

Specifically, we recommend that you talk with your living trust and estate planning lawyer about creating a standalone retirement trust, or SRT.

An SRT is designed to be the beneficiary of your retirement funds, including funds from an IRA, 401(k), etc. Ownership of these assets does not change as long as you’re alive. When you die, however, assuming you have correctly named the SRT as the designated beneficiary of these accounts, then the trust will “inherit” your retirement assets, and a trustee will be tasked with managing and withdrawing these funds.

Why Choose an SRT?

There are several reasons why we recommend an SRT for any estate plan. The benefits include:

• The funds your heirs inherit will be well-protected from predators, lawsuits, and creditors.
• Your retirement funds will go to the people you genuinely wish to inherit them and nobody else.
• A professional trustee can provide oversight and management of your funds, while also safeguarding heirs against reckless spending.
• An SRT also enables you to plan for a beneficiary with special needs properly.
• An SRT also allows you to name minors as immediate beneficiaries without court intervention or supervision.
• You can also reap the benefits of generation-skipping transfer tax planning.

For these and many other reasons, it’s prudent to talk with your living trust and estate planning lawyer about possibly creating an SRT.

Some Estate Planning Case Studies

To provide a concrete example of how an SRT can benefit you, consider one common situation. Parents often worry that their children will one day get divorced and that a child’s inherited money may be seized by a divorcing spouse. An SRT can put some important guardrails in place to prevent this from happening.

Consider two possible scenarios. Which would you prefer for your children?

• Scenario 1: Tom and Lisa love their son-in-law Chuck and feel sure that his marriage to their daughter Liz will last forever. They bequeath their retirement plans to Liz outright upon their deaths. But five years later, Chuck files for divorce from Lisa, and ends up taking 50 percent of those retirement funds.
• Scenario 2: Tom and Lisa love their son-in-law, Chuck… but they also understand that about half of all marriages end in divorce. To acknowledge this ugly truth, they ensure that their retirement funds are well-protected when they do their estate planning. They place their retirement funds into an SRT, and when Lisa and Chuck divorce five years later, Lisa is able to keep all of that money for herself, using it to create a new beginning.

Review Your SRT with a Living Trust Lawyer

Even if you already have an SRT in place, there may be some benefit to reviewing it with a skilled attorney. This is especially true in light of the SECURE Act, passed in 2019 and effective as of 2020. Essentially, this law means that those who inherit retirement funds via an SRT will need to cash out the entire amount within a span of 10 years. If you’d like to create options for your beneficiaries to keep their funds secured in a trust for a longer period of time, talk with your estate planning lawyer about adding accumulation provisions to the trust.

If you have any questions at all about your SRT or about other methods for effective estate planning, we welcome you to contact Max Alavi APC, OC Trusts Lawyer. Alavi is one of the area’s most trusted estate planning lawyers with a proven track record and incomparable client reviews. Schedule a consultation with Max Alavi APC, OC Trusts Lawyer, at your convenience.

There are several estate planning tools that allow one spouse to pass their estate to another, minimizing the estate tax burden upon their death. But which is the better option: A Marital Deduction Trust or a Bypass Trust? Find out from Max Alavi APC, OC Trusts Lawyer.

Advantages of Marital Deduction Trusts and Bypass Trusts in Minimizing Federal Estate Taxes

One of the most important estate planning tools available to married couples is the federal estate tax marital deduction. Basically, this provision allows a married couple to leave all or a portion of one spouse’s estate to the surviving spouse, deferring federal estate taxes. Beneficial though this may be, it’s important to understand that it is just a deferment, not a reduction of the overall tax burden. In other words, the federal estate taxes must still be paid by the estate once the second spouse dies.

A living trust attorney may recommend a Marital Deduction Trust in order to curb some of the negative effects of passing an estate to a surviving spouse, including the payment of estate taxes. The deduction can be great for allowing the surviving spouse to access the full value of the estate, up until their death. Still, advanced planning is needed in order to mitigate the tax obligations that are deferred to the eventual beneficiary.

Another Option: The Bypass Trust

In addition to the Marital Deduction Trust, living trust attorneys may also recommend the Bypass Trust. A Bypass Trust is so named because it makes it possible to bypass the surviving spouse in favor of other beneficiaries (usually children or grandchildren), holding the assets of the estate in a trust. Bypass Trusts allow the surviving spouse to use and access assets in the trust, but they are not the legal owner of the trust or the properties it contains.

Despite some clear benefits, Bypass Trusts also have some notable IRS-imposed limitations. Because the surviving spouse is never the official, legal owner of the trust and its assets, the surviving spouse is not required to include the trust property in his or her estate. This eliminates their need to pay estate taxes, making it not unlike the Marital Deduction Trust.

However, according to the IRS, a Bypass Trust may not exceed assets of $5,250,000. This amount is subject to change every year, which highlights the benefits and importance of a Marital Deduction Trust. Ultimately, the Marital Deduction Trust provides a more versatile, all-encompassing way for spouses to share assets and defer the need to pay federal estate taxes.

Talk with a Living Trust Attorney

Questions about the Marital Deduction Trust, the Bypass Trust, or other estate planning tools? Talk with Max Alavi APC, OC Trusts Lawyer. He has a wealth of estate planning experience helping clients develop their estate plans, and he boasts an incredible portfolio of rave reviews, plus a reputation for getting results on behalf of his clients. To learn more, schedule a consultation with Max Alavi APC, OC Trusts Lawyer, today.

Families with complex business assets may require advanced estate planning vehicles, including Family Limited Partnerships and Family Limited Liability Companies. What are these estate planning vehicles, though? What benefits do they offer? And how can they be applied? Gain insight from Max Alavi APC, OC Trusts Lawyer.

What are Family Limited Partnerships and LLCs?

Families that have complex business assets may require advanced estate planning vehicles. Family Business Entities can be invaluable in accomplishing the family’s long-term business, estate, and financial planning objectives. Consider some benefits of using Family Limited Partnerships or Family Limited Liability Companies.

What’s the Purpose of Family Limited Partnerships and Family Limited Liability Companies?

There are several reasons to consider these Family Business Entities, including:

• They provide asset protection.
• They provide income, gift, and estate tax savings through valuation discounts.
• They allow for the centralized management of family assets.
• They facilitate business succession planning.
• They help train younger generations in effective asset management.

What are the Types of Family Business Entities?

Generally speaking, Limited Partnerships (also known as LLCs) are used as estate planning vehicles to achieve valuation discounts for estate and gift tax purposes and limited liability for most or all owners.

LLCs offer many advantages, including flow-through income for tax purposes. They also yield more management flexibility when compared with other vehicles.

It’s crucial to note that the terms “Family Limited Partnerships” and “Family Limited Liability Companies” bear no legal significance. These titles denote the secondary advantages of these vehicles.

Using Family Business Entities for Asset Protection

These vehicles are usually employed when there are assets of significant worth, typically exceeding $10 million. Family Limited Partnerships and Family Limited Liability Companies provide options to give away or distribute assets while offering substantial tax discounts, thus preserving the estate’s overall value.

To implement one of these estate planning tools, it’s critical to consult with a skilled attorney. To find out more, connect with Max Alavi APC, OC Trusts Lawyer, who boasts a sterling reputation and a proven track record helping clients manage sophisticated estate planning solutions. Schedule a consultation with Max Alavi APC, OC Trusts Lawyer, today.