Separate Trusts for Retirement Benefits Sometimes Stink

Separate trusts are good for some and 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

An all encompassing trust that commingle assets can stink. First, doing so can be difficult for the trustee to pin down whether a distribution came from one asset or another. Second, the trust agreement must be clear on distributions.

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 going to be the most important factor in reducing administrative nightmares.

Are Separate Trusts Worth It?

On the other hand, separate trusts might not be the best response either. 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.

For some, a family pot trust may be a better option than having a separate trust.

One of Many Goals for Retirement Benefits

One size does not fit all. And, each family should put their own goals and needs first.

Here are reasons why a separate might be ideal:

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