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VanNess & VanNess, P.A.
Toll Free: 866-697-6221 Local: 352-436-4333 Over 100 years of combined experience

Florida residents often wish to leave as much as they can to their loved ones, and investing retirement funds prudently could play an important role in achieving this goal. Trusts have always been useful investment and estate planning tools, but a 2003 change to the laws governing IRAs made them even more beneficial. The legal change allowed the age of non-spouse beneficiaries to be taken into account, which meant that distributions could begin earlier and last longer. The same sort of provision was added for corporate retirement accounts in 2006, but a great many 401(k) accounts require all funds to be distributed within a year of the account holder's death.

Inheritance trusts provide possible tax advantages not offered by standard revocable trusts, but the rules governing their use are strict. In addition to potential tax benefits, inheritance trusts can prevent IRA accounts going to unintended recipients and provide safeguards against irresponsible behavior. This can be of particular concern for testators with blended families or relatives with histories of mental illness or substance abuse.

Placing IRA or 401(k) funds in a trust could also provide protection in a divorce. Under IRS rules, ex-spouses who claim up to half of the value of unprotected retirement accounts with a qualified domestic relations order pay no tax on the money. Placing IRA funds into a trust rather than passing them on directly could also prevent beneficiaries from losing benefits in a lawsuit or bankruptcy and it may make it easier for them to qualify for certain government programs.

Straightforward estate planning tools like wills or health care directives convey wishes and provide guidance, but trusts often allow far more control and flexibility. Attorneys sometimes also recommend the use of trusts to avoid what can often be a lengthy probate process.

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VanNess & VanNess, P.A.