Separate trusts for retirement benefits like a 401(k), IRA, or other financial account is good for some, bad for others. The issue is whether a trust should hold an exclusive asset like a retirement benefit or included as part of an aggregate?
Really, the issue depends on answers to a handful of questions:
- What is the value of the retirement account?
- How attentive to detail is the trustee(s)?
- Are beneficiaries old or young?
- Does your trustee(s) like the idea of managing a network of trust provisions?
Commingled Trust Assets Can Stink
Yes, an all encompassing trust that commingle assets can stink. For one, it may be difficult to pin down whether a distribution came from one asset or another.
Second, how fast must a distribution get transferred before it looks like one asset?
From the perspective of Trustees and Trust Administrators, putting all assets into one trust probably isn’t ideal. That said, the terms of the trust is likely more important than administrative nightmares.
Separate Trusts Might Not Be Worth It
On the other hand, separate trusts might be financially impractical. Although there isn’t necessarily a set level where dividing retirement benefits from other assets is ideal, long-term costs should be addressed.
This is especially true when the beneficiaries are minors and the Grantor or Donor cannot predict the long-term needs for each child.
Because the future doesn’t look like it used to look, a family pot trust may be better than separate trusts for some families. Of course, this is where one-on-one attention cannot be undervalued.
One of Many Goals for Retirement Benefits
One size does not fit all and each family should put their own goals and needs first. My preference is a separate trust for the following reasons:
- Control over selecting a specific trustee,
- Reducing accounting nightmares, and
- Locking in tax opportunities for an Eligible Designated Beneficiary.
Families considering one trust or weighing separate trusts have an important job. The job is putting loved ones first and making decisions on their behalf while there is still time.
Unfortunately, these types of decisions are layered with tax issues and finding the best path for an Eligible Designated Beneficiary.
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Estate Attorney Jasper Berg