A Michigan Retirement Plan Trust is a specially designed, cutting edge estate planning tool, that may be used as the beneficiary of an IRA or other type of qualified account. It’s a form of stand-alone trust, separate from a revocable living trust. The Retirement Plan Trust (RPT) allows you to maximize income tax deferral and wealth accumulation while also building in an unprecedented level of asset protection.
For Michigan clients who have retirement accounts greater than $150,000, a Retirement Plan Trust makes a lot of sense for a variety of reasons.
Forced Stretch Out of Required Minimum Distributions (RMDs)
Thanks to the 2004, Private Letter Ruling, through a Retirement Plan Trust, your loved ones can now “stretch out” their taxable required minimum distributions (RMDs) over their lifetime, while maintaining all the benefits of a trust if a Retirement Plan Trust is named as a beneficiary. Too often in the past, beneficiaries were named outright to receive the IRAs or 401(k)s and they ended up blowing the stretch out, by taking a lump sum distribution.
Not anymore. The Retirement Plan Trust provides protection and can force the stretch out.
What is a Retirement Plan Trust?
A Retirement Plan Trust is a stand-alone trust created solely to hold retirement accounts. It is a form of revocable trust, but separate from your typical revocable living trust. It is established during the lifetime of the IRA holder and is named as a beneficiary of the IRA (typically after a spouse).
The Retirement Plan Trust is relatively new, so don’t be upset if your financial planner, CPA, or even your estate planning attorney is unfamiliar with it. It is new as of 2004, when there was a private letter ruling from the IRS that allowed it.
How Does the Retirement Plan Trust Work?
First, the IRA owner must set up the Retirement Plan Trust during their lifetime and it must meet the strict IRS requirements. Typically, it is set up as revocable trust, meaning it can be changed at any time. The trust will name beneficiaries, the younger the more powerful the stretch out provisions become.
From there, new beneficiary designations must be completed, naming the Retirement Plan Trust as beneficiary.
Then at the owner’s death, the IRA account is retitled and the RMDs pour into the Retirement Plan Trust and are either paid out or held per it’s terms. The beneficiaries of the account then receive the benefit of both the stretch out as well as the asset protection.
Want to Learn More about the Retirement Plan Trust?
Then request our free Retirement Plan Trust Guide.