Setting Up A Massachusetts Standalone Retirement Trust (SRT) / IRA Beneficiary Trust

Planning for the eventual distribution of your retirement savings is just as important as planning for retirement itself due to complex tax rules. On average, roughly 40% of an American individual’s wealth is stored in a 401k, 403(b), or IRA. Thus, retirement assets are likely to account for a considerable portion of your estate. For many clients we work with from academia, these savings are of substantial value. Appropriate care should be taken to make sure that this significant investment is protected for those you love.

At your death, your retirement benefits could be subject to both estate taxes and income taxes. Under IRS rules, beneficiaries must take Required Minimum Distributions over their life expectancy to ensure that income taxes are paid over the beneficiary’s life. However, a beneficiary may decide to cash the entire IRA. The taxes on a complete cash out would result in a tremendous loss in the value of the IRA due to the income taxes imposed. Furthermore, without a plan in place, your IRA may ultimately be inherited by the wrong people, since your initial beneficiary may designate their own beneficiary. The establishment of a standalone retirement trust can protect your retirement savings for your intended beneficiaries.

What Is A Standalone Retirement Trust (SRT)?

Standalone Retirement Plan DiagramA standalone retirement trust (otherwise known as an IRA beneficiary trust) is a trust that is created to receive an IRA once the owner of an IRA passes away. The SRT does not own any assets during your lifetime. As the beneficiary of the IRA, a standalone retirement trust provides maximum income tax deferral and wealth accumulation for the eventual distribution of your IRAs to your beneficiaries.

You may want to consider forming a standalone retirement trust if:

  • Your retirement accounts make up more than 50% of your total wealth
  • Your beneficiary is a minor child
  • Your beneficiary is disabled or incompetent
  • Your beneficiary is in need of creditor protection, facing a divorce, or unable to make sound financial decisions
  • You would like to guarantee coordination for payments of estate taxes
  • You are in a second marriage and would like to be able to provide for your current spouse and children from your first marriage

Benefits Of A Standalone Retirement Trust

There are several benefits to establishing a standalone retirement trust. Benefits include:

  • Allowing beneficiaries of funds to pay income tax over the longest period of time possible (otherwise known as maximum stretch of the Required Minimum Distributions)
  • Allowing for generation-skipping benefits so that estate tax is avoided when passed down from a child to a grandchild
  • Alerting beneficiaries that there are adverse tax consequences to cashing out IRAs immediately
  • Providing asset protection from spendthrift beneficiaries, creditors, and divorce
  • Creating the ability to provide for a surviving spouse or children from a prior marriage in blended families
  • Creating plans for succession and controls against unintended distribution in the event of the untimely death of an intended beneficiary

Legal Requirements For A Standalone Retirement Trust To Qualify As A Beneficiary Of An Inherited IRA

If you decide to name a trust as the beneficiary of your IRA, there are certain legal requirements that must be met. First and foremost, all of your beneficiaries must be living individuals. This means that you can’t leave your retirement assets to charities, businesses, or trusts that aren’t “see through” trusts. The Required Minimum Distribution amount will be calculated based on the life expectancy of the oldest beneficiary. Therefore, you must also identify the oldest beneficiary. Finally, the trust must be irrevocable upon the death of the plan owner.

Form A Standalone Retirement Trust With A Massachusetts Estate Planning Attorney

Contact the estate planning attorneys at Eckert Byrne LLC if you are interested in maximizing the benefits of your IRA with a standalone retirement trust. Finalizing your legacy plan is something you don’t want to sleep on. Life takes unexpected twists and turns, which can create a disastrous situation if there is no plan in place. Eckert Byrne LLC will help you ensure your goals are met efficiently and effectively with our comprehensive and holistic approach to estate planning. Schedule a consultation with our attorneys today by filling out the form on this page or calling (855) 743-3136.

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