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Revocable Living Trust. Anyone heard of this?

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  • #31
    Resurrecting this thread I just saw.

    The trust that protects retirement assets for the heirs will be irrevocable by the time that goal applies. So it will provide protection for the children.

    The provisions creating trusts for the retirement accounts can be part of an RLT or be in a will. Neither an RLT not a will provides asset protection for the person who created them. With appropriate provisions either can protect heirs.

    Leaving retirement assets to the children directly provides no protection at all. The COULD have taken the money out over their life expectancies. The also could take out all the money the day they receive the accounts. Creditors could capture that money in lawsuits. It would NOT be protected while in the retirement account. That protection applies only to the person who created the account for their own retirement and that person's spouse. No protection for anyone else who inherits the account.

    A conduit trust CANNOT retain the distributions from the retirement account. For that you need an accumulation trust. The IRS requires that a conduit trust function as a conduit, immediately distributing money taken out of the retirement account to the beneficiaries of the trust. With an accumulation trust the trustee can choose whether to distribute Monday taken out of the retirement account or to retain it in the trust. If it remains in the trust then it remains protected.

    Even before the SECURE act this was the major limitation of conduit trusts, money is protected only as long as it is in the trust but it must leave the trust when it leaves the retirement account.

    With the SECURE Act, the non-spouse beneficiaries cannot stretch the distributions from the retirement account. This means that all the money will be out of the accounts after 10 years. With a conduit trust the money also would be out of the trust, so no protection at all.

    If you want to be sure the money is protected from claims against the beneficiaries before and after it leaves the retirement account and you want this protection to last a long time, then you want an accumulation trust.

    Leaving the money directly to the no spouse beneficiaries accomplishes nothing.

    You can set up an accumulation trust in your RLT or you can do it in your will.

    So, except for the conduit trust, which should have been an accumulation trust, the attorney was giving good advice. Suggestions to leave the money directly to the kids are as wrong as wrong can get.


    • #32
      Originally posted by afan View Post
      Resurrecting this thread I just saw.
      this thread is over a year old. please let a mod know if you want to start a new thread about RLT.