The Benefits of a Standalone Retirement Trust (SRT)

One of the most important things that you can do financially is set up an estate plan to control the way your assets will be distributed to whomever you choose. Estate planning consists of the design, creation, maintenance, and administration of documents that will provide instructions, in writing, through trusts, and wills. If you have charitable-giving objectives, you can only do so in writing. The administration of your trust or estate will require the assistance of someone you trust, known as a fiduciary; so it is important to leave clear instructions to ensure that your accumulated wealth is distributed accordingly with your wishes.

One particular type of trust that might be beneficial for you is a Standalone Retirement Trust (SRT).

What are SRTs?

Most people have the bulk of the wealth in their retirement plans and accounts. A Standalone Retirement Trust is a trust that is created for the single purpose of serving as the beneficiary of unspent tax-qualified retirement assets (IRA, 401K, etc.) when you pass away. The Trustee of the SRT will make distributions to your heirs (or other Grantees) according to your wishes.

What are the Benefits of Having an SRT?

SRT’s offer several benefits:

Unlike most gifts of retirement accounts through which the beneficiary receives a lump sum payout of the entire balance of the retirement account. SRTs allow you to specify how distributions are to be made to the beneficiary over time. Thereby allowing the beneficiary to pay the taxes that are due upon receipt of the distribution incrementally as well.
It may be beneficial to postpone distributions in the future if the beneficiary is young and not yet mature enough to be financially responsible for a large gift. Delaying the gift until the beneficiaries are older may be your preference and more likely to prevent them from spending all of the funds too quickly.
SRTs can place the money that is in your retirement accounts beyond the reach of your beneficiaries’ creditors. While you are alive, your retirement account is well protected against claims by your creditors. However, once you pass away and the account is distributed to beneficiaries, many of these protections vanish and it becomes reachable by courts or creditors. Delaying the distribution of the inherited retirement accounts to your beneficiaries can prevent its seizure by their creditors.
SRTs provide a solution to some of the impact of the recent SECURE (Setting Up Every Community For Retirement Enhancement) Act of 2019, which limits non-spousal beneficiaries from stretching out receipt of inherited retirement money beyond 10 years. Prior to its enactment, most beneficiaries of inherited retirement accounts were allowed to stretch out the payout of the money over their entire lifetime. Although SRTs cannot extend that 10-year payout period, it allows the owner of the trust to establish the timeline for when the beneficiary begins to receive the funds.
SRTs also help to keep your retirement assets together, separately from your non-retirement assets, allowing for them to be administered separately.

Is an SRT the Right Option for You?

Our estate planning services include helping our clients to understand their options and to determine the best course of action. There are several things that we will consider when we sit down with you to determine if an SRT is the right option for your qualified retirement assets. Generally, they provide greater benefits for people with retirement funds of $100,000 or more. It may also be relevant to know whether you are gifting your retirement account assets to the same beneficiaries to whom you are leaving your non-retirement assets; whether the beneficiary is likely to waste the inheritance money or not, etc.

Chat with Us about Standalone Retirement Trusts

If you want to learn more about SRTs or see if they are the right option for you and your beneficiaries, then chat with Crane Law Group. We have your back for everything to do with the planning of your estate and we will give you the best advice for your specific financial needs.