Providing Creditor Protection and Stretch-Out of Your Retirement Accounts for Your Children or Grandchildren continued..
Next, the custodian of your retirement account will provide a beneficiary form upon your request. Note, however, that if you are married and live in a community property state such as California, you will likely need the signature of your spouse in order to affect a change to your beneficiary form. After the custodian records the update to your beneficiary form and delivers the confirmation to you, you should place a copy of the confirmation in your Retirement Protector Trust™ plan portfolio. Also, if you change custodians or transfer your account to a new custodian, you may need to complete a new beneficiary form. If you open a new retirement account, you will need to complete a beneficiary form as well. If the trust is drafted as a revocable trust, you will want to revisit the trust provisions every 2 to 3 years to control for any changes in your family situation, changes in your net-worth or changes in the tax laws.
Now let’s turn to what happens to your retirement accounts and the trust when you die. If your spouse has predeceased you or you are not married and you’ve listed a Retirement Protector Trust™ as the beneficiary of your retirement accounts, the first thing for the trustee to do is to visit with your attorney or one versed in this type of trust.
No withdrawals from the retirement accounts should be made until the trustee has had an opportunity to meet with an attorney. This is because most retirement accounts (minus Roth IRA/401(k)s) have not been subject to income tax yet. We want to preserve any tax saving opportunities so it is vital that the trustee not accelerate any income from the accounts yet. We also recommend to our clients’ trustees that they do not contact the trust beneficiaries or the retirement plan custodians until they have had an opportunity to meet with an attorney. The attorney will evaluate whether or not federal and/or state death tax returns will be required depending upon the size of the estate. A CPA will also be working with your trustee to assist in filing any income tax returns that will be required for the Retirement Protector Trust™.
Lastly, there are a few important dates to remember. Your trustee will have to determine whether you were taking required minimum distributions out while you were living. If you were, your trustee will have to check with your plan custodian to ensure that the required minimum distribution has been made or withdrawn for the year in which you passed away. Also, when there is a non-spouse beneficiary (as is usually the case with a Retirement Protector Trust™), the next required minimum distribution will need to commence by December 31 in the year following your death.
If a Trust Protector is nominated in your trust, he or she must make any tax elections authorized by the trust within nine months of your death and must deliver the same to your trustee in writing. Your trustee should consult with your attorney regarding this matter.