Many people have a large part of their savings in IRAs or retirement plans at work, like 401k and 403(b) plans.  These accounts pose a special planning challenge because the money in these accounts has never been taxed.  Since you will be taxed when you take money out of the account, most people try to delay distributions for as long as possible.

Delaying or “stretching out” distributions can be especially beneficial after you are gone and your beneficiaries inherit your retirement plan.  For example, with good planning instructions, your child or grandchild could take distributions from an IRA over a 40 or 50 year (or longer) period.  This “stretch out” allows your IRA to continue to grow tax deferred and has a tremendous compounding effect.  Our firm can show you the benefit of this “stretch out” for your retirement plan, and then help you include the technical instructions in your estate plan to give your loved ones this benefit.

You can also provide additional protection for your IRA (or retirement plan at work) by naming a trust as the beneficiary.  By naming a trust, you can ensure that the beneficiary does not withdraw the IRA shortly after your death, thereby eliminating the possibility of a long “stretch out”.

The trust can also ensure that the money stays in the family if your child dies before the IRA has been fully withdrawn.  Without the trust, your child’s surviving spouse may end up with the IRA and spend the money on his or her new spouse or new step-children.