Most people who do a good job of saving for retirement in tax-deferred retirement accounts usually wind up leaving a good portion of these assets to heirs. And while you may wish that your heirs would protect these assets as long as possible, the fact is that a majority of beneficiaries cash out their inheritances within the first year.
If heirs are to benefit over the long-term from what remains in tax-deferred retirement accounts, they would be wise to leave the money where it is and take advantage of what is known as the “stretch” – where distributions are made over time, according to an heir’s age at inheritance and life expectancy. If a young child inherits, this could result in a significant accumulation of assets growing tax-deferred.
To make this happen, you can create a trust that will allow for the accumulation of the distributions and pay them out over time. The benefits of establishing this kind of trust include:
· If the heir is a minor child, a guardian will not be needed to manage the assets, since the trust is the beneficiary,
· You assure tax-deferred growth of assets since cashing out is not an option;
· The trusts protects the assets against an heir’s potential creditors, divorce settlement, or other financial problems;
· You are able to name successor beneficiaries so assets pass as you wish;
· The trust can protect an heir with special needs by not compromising their qualification for federal benefits.
The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0042.