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Protecting Your Retirement Savings with a Trust: Why You Might

Retirement savings accounts are a common inclusion in comprehensive estate plans, left by parents to their children or from a single adult to a loved one. A problem, or less than ideal situation, that often occurs in situations such as these involves children who are bent on spending that money quickly or carelessly.

When retirement savings are included in the estate plan, many times, a parent or parents would like to control how quickly a son or daughter may draw from that account. As Kelly Greene points out in a recent Wall Street Journal article, parents will oftentimes turn to trusts to control the rate at which a child may collect and spend retirement savings.

Suppose you have a retirement account that you have maintained for more than 40 years. As you are planning your estate, you decide that you do not want to leave your retirement savings to your child in one lump sum. This might be because they are a big spender and you don't want them to burn through your life's savings in a few years.

It could also be because they are in a tenuous relationship, facing divorce, or have the potential of being sued at some point in the near future. These are other reasons, outside of fiscal responsibility, that sometimes lead parents to establish trusts.

This way, your retirement savings (IRA) goes into a trust after you pass and this trust may be set up so that all of the money is not available to your child at any time. This prevents them from spending it and makes it less accessible to others who may be looking for a piece.

Proceed with caution, though. Setting up a trust to protect your IRA assets is not without its risks.

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