It may surprise you but the retirement account you have been contributing to and plan to leave to your spouse, can be seized. Divorce, lawsuit or bankruptcy proceedings can take that money.
3 Options Available to Surviving Spouses
There are basically three options available to your spouse when they inherit your IRA.
- Cash out the IRA. Your spouse can cash out the IRA but it will not be protected from creditors. It will also have a large federal tax to pay on it.
- Maintain the IRA. The IRA can be maintained as an inherited IRA but will not be protected from creditors.
- Roll over the IRA. Your spouse can roll the inherited IRA over and treat it as their own IRA. With this option, the IRA will not be protected from creditors.
It can be frustrating to know that someone can swoop in and take your retirement money you have worked hard saving for your spouse. The solution is to have a retirement trust.
Standalone Retirement Trusts Provide Protection
A Standalone Retirement Trust (SRT) is a revocable trust that becomes the beneficiary of your retirement accounts after you die. It is a special type of revocable trust that protects the retirement funds from creditors. Some provisions can be added that can specifically benefit your spouse in the cause of a second marriage, divorce, lawsuits from car accidents, malpractice, or tenants, business failure, bankruptcy or Medicaid qualification.
Want to Know More?
The best options to protect your retirement assets and allow them tax deferred growth is by way of a Standalone Retirement Trust. If you want to know more about this call our office today and set up a consultation. We will discuss your options and find the best action for you and your spouse.