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SCOTUS on Retirement Accounts

The Supremes Agree with Us: Retirement Accounts Should be Paid to Trusts

Many of our clients have accumulated substantial savings in qualified retirement accounts: Traditional IRAs, Roth IRAs, 401k plans, Roth 401k plans, and others. A special characteristic of these accounts is income tax deferral or, in the Roth versions, income-tax-free growth.  Income tax deferral, or tax free growth, is a good thing, and as they say, all good things must come to an end!

All qualified retirement accounts have rules to mandate that distributions to be made over a period of years either during the original account holder’s retirement years or when someone inherits the account at the original account owner’s death.

For many years we (and a prevailing view in the National Network of Estate Planning Attorneys) have recommended that instead of naming individuals (spouse, children or grandchildren) as the beneficiaries of their qualified retirement accounts, they name carefully-crafted trusts (for the benefit of those individuals!) as beneficiary of such accounts. Doing so helps protect the account from bad things that can happen to your heirs: lawsuit, divorce and catastrophic illness.

Other attorneys (and our clients’ financial planners, too) often balk at that idea, hoping that the retirement plans would still have asset protection without being payable to trusts. The question is settled now: the U.S. Supreme Court ruled 9-0 that an inherited retirement plan is no longer a retirement plan that is protected from lawsuits and similar predators.

A good article on the topic was written by our St. Louis colleague, Steve Laiderman, and we have addressed the topic in our client newsletter more than once as well.

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