Why do I like Retirement Trusts best of all beneficiaries for retirement assets? Because unlike any other beneficiary, with an Irrevocable Retirement Trust, we can achieve every objective clients have for their estate planning. (Although the trust has to be irrevocable — according to one case in Kansas — it’s easy to replace it with a new trust as long as the plan participant is alive and well.)

We can achieve estate tax planning goals by keeping the first spouse’s retirement assets out of the second spouse’s taxable estate; especially valuable if the retirement plan is a substantial portion of the estate. This is applying the A-B formula that allows married couples to double the amount they can pass on to beneficiaries free of estate tax to retirement assets.

We can maximize the income-tax deferral benefits of the retirement asset by ensuring that the stretch-out is fully utilized. (That means that your beneficiaries can withdraw and pay tax on the retirement plan over the course of their entire lives, rather than all at once.  If they have to withdraw it all right away, it may put them in a higher tax bracket so that they have to pay very high income tax rates on the inheritance.  Imagine a $1M IRA reduced to $650k through income taxes.  Imagine the beneficiary finding out that it was avoidable…)

We can provide asset protection, divorce protection, remarriage protection and disinheritance protection to all beneficiaries, from the spouse to the grandchildren. Unlike in an RLT’s conduit trust provisions (at our firm, a standard clause we include that, in some cases, allows a stretch-out), a Retirement Trust can contain Accumulation Trust provisions that allow the trustee to accumulate required minimum distributions inside of the trust instead of distributing them to the beneficiary each year. This allows true protection because there is no right to attach or take away.

Two cases (one from Delaware – a powerful state), have recently held that an inherited retirement plan has NO asset protection on its own.  Listen, while you own your own retirement plan, you get great asset protection, especially if that retirement plan is under ERISA — 401(k)s, 403(b)s, etc.  If you get sued or go bankrupt, your entire 401(k) is protected (the protection for contributory IRAs is limited; comment below if you want details), no matter how big it is.  Your beneficiaries don’t get this protection.

Finally, we can ensure the asset is never accidentally probated. You may wonder how it could ever be probated.  All it takes is for the primary beneficiary to fail to complete her own beneficiary designation form.  Or the custodian could lose the designation form.  Or you could name a minor child as a beneficiary.  Lots of paths to probate.

The Irrevocable Retirement Trust is an estate planner’s dream for her clients!  DEFINITELY consider it if your retirement assets make up more than 20% of your total estate or exceed $300k.

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This may be the hardest, most important question you will face in the entire estate planning process. If your child is young, the guardianship question is probably harder and more important but this is a close second! I say this not to intimidate you but to reassure you that hundreds of our clients have been in your very position before and every single one of them has found a solution.

We can go into greater detail on any of these in the comments or on a future blog, depending upon demand, but for now we’ll look at a brief overview of your options:

Your Parents: they might be great as a temporary solution but in the natural order of things, they will not live long enough. This Special Needs Trust needs to last for your child’s entire life.

Your Siblings: while they can be a great choice for initial trustee or successor trustee after you, they too will probably not outlast the trust. But they can manage it while we wait for other candidates to, literally, grow up.

Your Other Children: this is a mixed bag. While they are the same generation as your child with special needs, there’s no predicting who will outlive whom. Then there is the burden. You may be counting on you other child(ren) to visit or even to act as Guardian/Conservator to your child with special needs. The job of Trustee, done properly, is an onerous one, fraught with liability. Finally, if your child with Special Needs has more than one sibling you MUST consider family dynamics. Can you name them all as co-trustees, or will that be placing your Beneficiary in the eye of an endless hurricane? If you choose one, how will the other(s) react to “the chosen one” and to the Beneficiary?

Your Special Needs Trust Attorney: in limited cases, I will agree to act as a successor trustee for clients. It often makes sense when naming family does not, and the clients want more personalized attention than a bank can provide. Of course, since I’m mortal, my back up is usually…

A Bank or Trust Company: their minimum trust sizes range from $300,000 to $1M, with the vast majority of banks, brokerage houses, and trust departments either refusing to accept Special Needs Trusts or setting their minimum at $1M. They have one big advantage and that is “deep pockets”; however, in my experience, it’s very hard to get anything out of those pockets because they will not accept a trust that holds them to a standard of accountability that is any higher than “gross negligence“. Gross negligence is very difficult to prove because it goes beyond all kinds of mistakes that no one in their right might would make to mistakes that are just outrageous.

Sometimes a combination makes sense. For example: the estate planning attorney together with the brother of the beneficiary. Then, whichever of them lives the longest with a bank that has a stellar trust department reputation. Then, the bank alone with a Care Manager-style Advocate for the rest of the Beneficiary’s life.

If you find yourself more confused about your choices than before you read this post, don’t be alarmed. That’s just because you realize you have more choices than you thought.

Many a client has resolved an “impossible” situation in my office, not because I have the answer but because I have learned to ask great questions over the years.

So come in, have a cup of coffee with me and let’s take on your toughest choice together. I promise it will be time well-spent.

Welcome to the newly redesigned blog. The redesign of the blog is part of an effort to redesign the entire website, which grew out of the many changes that led to our new firm name. No longer The Law Office of Diedre Wachbrit, APC, this email is coming to you from Wachbrit Braverman PC.

And the lead attorney is not Diedre Dennis Wachbrit, single mother.  Instead, it’s Diedre Wachbrit Braverman, remarried mother of two fourth-graders. I changed my name when I wed Bennett Braverman, of Boulder, Colorado, in May. Bennett is also an estate planning attorney, and the kids just love him.

I have another big change to tell you about before I get down to the serious business of blogging about legal topics. (I’ve got some good ones already written for including a three-part series on a topic that generates a lot of questions: retirement plan beneficiary designations!)

The other big change is that our firm once again has an Associate Attorney, Mrs. Annabel Blanchard Spatola. A recent law school grad, Mrs. Spatola decided early on that she wanted to focus on estate planning and related areas. We are fortunate to have her because she is a quick learner and she shares the team’s dedication to client service, integrity and the right result, every time.

So please consider this blog a resource for learning (use the comments area for questions), and for sharing. We will continue to email you blog snippets but if you want to see blog articles as soon as they’re published, subscribe to this blog using an RSS reader.

- Diedre Wachbrit Braverman