What is a Retirement Account Protection Trust (RAPT)?

Let's begin with some basics about tax-deferred retirement plans.

 

The value of qualified retirement plans, such as, IRAs, 401(k), 403(b) or 457 plans, is that the owner is allowed to accumulate savings without having to pay tax on the income or capital appreciation until the funds are withdrawn.

 

If you leave one of these qualified plans to your spouse, your spouse can roll the assets into an IRA in his or her own name and can defer taking required minimum distributions (RMD's) until he or she is over 70.

 

If you leave retirement plan assets to your children or grandchildren, that beneficiary shouldroll the qualified retirement plan proceeds over to his or her own "inherited IRA" to take full advantage of tax-deferred growth for his or her lifetime and take only RMD's based on the beneficiary's age. Unfortunately, many beneficiaries withdraw the principal early.

 

When you name a RAPT as the beneficiary of an IRA or qualified retirement plan, you can:

  • Assure that your retirement assets continue to grow tax-deferred for many years.
  • Protect your retirement assets from your beneficiary's creditors or possible predators.
  • Keep the assets in your family bloodline.
  • Prevent your retirement assets from being spent before your disabled beneficiary can receive governmental assistance.

 

The IRS will allow the age of the trust's beneficiary as the measuring life for the required minimum distributions. If the annual RMDs are less than the annual growth rate of the account--which they tend to be at least until late in the beneficiary's life-- your beneficiary will wind up with more money because the account has grown tax-deferred over a longer period of time.

 

For instance, based on historical investment growth rates, an IRA that continues to grow tax-deferred for 20 years, even with RMDs, may yield four or five times more than when it was inherited--30 years ten times as much!

 

With a Retirement Account Protection Trust, the annual RMDs are paid to the trustee, who must keep it in the trust (accumulation trust) or pay it to the trust beneficiary immediately (conduit trust). Caveat: A very large IRA might present an income tax issue with an accumulation trust, so be sure to consult with a tax professional.

 

When is a Retirement Asset Protection Trust appropriate?

A RAPT is appropriate if a beneficiary might:

 

  • Have problems managing money.
  • Be subject to lawsuits.
  • Divorce.
  • Abuse alcohol or drugs or gambling, or
  • Be disabled.



Estate Planning &
IRA Beneficiary Trusts


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