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Retirement Plans - Did you Know...?

Final Thoughts on Retirement Plans for Estate Planning

This is the last part in this series on the interaction of retirement plans and estate planning, and I wanted to leave you with a few thoughts and suggestions:


  • Consider the grandkids! Children do not benefit as much from the stretch as do grandchildren because, obviously, they are older. So, some clients of mine, typically those with significant amounts in retirement plans, choose to carve off a portion of their plan to benefit a grandchild or grandchildren, while leaving the rest to the children. Making certain assumptions, a 35 year old child who inherits $200,000 can stretch it to about $1,200,000 over their lifetime. Using the same assumptions, a 7 year old grandchild inheriting $200,000 can stretch it to nearly $3,900,000! So, I encourage you to bring this up with clients of yours, when appropriate.

Beneficiary Form Mistake!

  • For various reasons, a client may have a Living Trust that, when the parent dies, creates Trusts for their kids and sometimes grandkids. The beneficiary form for their retirement plan will often list the primary beneficiary as the other spouse and the contingent as the client’s Living Trust. This can be a costly mistake! If you name a Living Trust as the beneficiary, with the Living Trust creating Trusts for the kids and grandkids at the client’s death, each beneficiary will have to use the oldest beneficiary’s life expectancy to calculate his or her RMDs! Let’s say my dad survives my mom and his Living Trust says that when he dies, Trusts are then created for me, my siblings and my 7 year old niece. The beneficiary form on his retirement plan lists “The Eric Hamrick Living Trust” as the beneficiary. Then my dad dies with $200,000 from his IRA being allocated to each of our Trusts. My 7 year old niece will have to use my life expectancy to calculate her RMDs. I am 35. Looking at the calculation above, that mistake just cost my niece $2,700,000!

  • A client’s plan does not have to involve grandkids for there to be a problem. If there are large gaps in age among the client’s own children, this can create a problem if not handled properly. A few years may not matter so much but we all know families where the kids are 10-20 years apart. This problem can also appear when using a Will that creates Trusts. To get around this problem, allowing each beneficiary to use their own life expectancy, you have to name each beneficiary’s separate trust as a beneficiary on the beneficiary form.

A Separate Trust or “Standalone” Trust Solely for Retirement Funds

  • Clients often wish to give powers of appointment to trust beneficiaries and include other provisions which could blow the stretch, depending on the provisions included which address retirement funds. A separate Retirement Plan Trust allows the client’s Living Trust or, Trust(s) created by a Will, to include these provisions and name older contingent beneficiaries, charitable beneficiaries and other commonly named beneficiaries without the increased risk of blowing the stretch. I think this can be particularly appropriate especially if the client is not leaving his retirement plans and other assets to the same people.

Contact Hamrick Law in Greenville, SC for estate planning and business planning!

* Disclaimer – This is not intended as legal advice. As always, you should not act upon any such information without first seeking qualified professional counsel on the specific matter.

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