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Introducing the Legal Line IRA Shield Trust

The US Supreme Court has ruled that an inherited IRA is not protected from creditors (Clark v Rameker).  If you want to protect your beneficiaries against loss to the bad guys, you will want to consider naming a special retirement trust as the beneficiary of your IRA.

The general rule when a trust is named as a retirement plan beneficiary is that distributions must be made under the so-called 5 year rule if death occurs before the Required Beginning Date and over the life expectancy of the original account owner (and not over the intended beneficiary’s life expectancy if death occurs after the Required Beginning Date).  The Legal Line IRA Shield Trust is specifically designed to receive retirement plan distributions.  This trust contains terms that assure that it meets the requirements of the Designated Beneficiary test, an EXCEPTION to the general rule.  Meeting this test allows us ignore the trust, to “look through” it to find and use the life expectancy of one of its beneficiaries, just as if the individuals had been named themselves.  Thus, the “stretch-out” concept remains available.

More important than the taxation issue, the reason to name the Legal Line IRA Shield Trust as beneficiary of your retirement account is to provide personal protections (creditor and even divorce protection) for your beneficiaries.

Case Study

Frank and Judy have three adult children, Gayle, Bill and Lucy. They live in Washington, have a vacation cabin in Oregon and like to spend time traveling whenever they get the time. Judy is still working as a nurse but Frank took an early retirement option.

Frank took an early retirement option. They know they want to keep their estate tax bill down, but what they really worry about is Lucy having enough money to live on when they die. Gayle and Bill should be ok, but Lucy is on her third marriage and hasn’t saved a dime. We were able to ease their minds be providing a lifetime protected stream of income for Lucy, but nothing for an ex-husband. We gave Gayle and Bill a shield against lawsuits, divorces and the bad guys. We made sure that Frank and Judy took care of each other first and even saved a lot more tax dollars than we spent on the planning. Frank and Judy invited us over for coffee. It was Kona blend-good coffee- we passed on the donuts.

Have you written a letter to your grandchild?

Nice people stop by my office to take care of their estate planning.  Recently, a client shared a letter with me.  It was a letter to his grandson.  He wanted it delivered after he died, along with a check from the sale of his house.

“Dear Ben:

I want you to know how much you have meant to me.  When I first held you in my arms, you were 2 days old.  I couldn’t believe you were my grandson.  What a miracle.  As the years passed by, I always cherished our time together.  Remember our first Mariner game?  You were eight and we sat right up close.  Between the pop, two hotdogs and I’m not sure what else, we had such a great time together.  I always appreciated that as you grew older, you still took time to attend a Mariner game or two with me each spring.  It meant a lot to me, especially when I knew you had a lot of other things to do and people (girls) to see.  I don’t think I ever said thanks, but then I don’t think it would have sounded right; we were just spending time together.  When your grandmother died a few years ago, those baseball games meant even more.

I was very proud of you when you stayed on the soccer team the year your dad died, and I still remember the year you won the team inspirational award.  You inspired me.  When you graduated from high school and then again, from college, I wanted to tell you that you were my hero.  You were.  Now, you are married and you have three kids, and what a terrific husband and father you are.  If your dad were still around, I know he’d be so happy with the way you have turned out.  You are receiving a check with this letter.  I wish it could be more, but the check is not important.  Just remember how much I love you and that I am your biggest fan.  I’ll be rooting for you wherever it is I have gone.  Love, your grandpa.”

This letter made me think.  If I were Ben, I think I would feel better about the words than the dollars.  How about you?  Have you written a letter to your grandchild?  What would you say?