Most people in Tennessee spend decades building up their retirement savings, and yet few seem to properly integrate these accounts into their estate plans. Retirement accounts typically contain significant sums of money and can have adverse tax consequences if mishandled, so addressing their distribution early on is a good idea. Using trusts is extremely helpful in this respect, although naming an heir as an account’s beneficiary may also work.
Naming a beneficiary is a common step when establishing or updating a retirement account. However, rather than naming an heir or leaving the space blank, consider using a trust. This can be done by creating a trust and then listing it as the account’s beneficiary. Individuals who are worried that an heir will mismanage their inheritance often choose trusts so they can establish a regular distribution schedule, preventing the recipient from spending the money too quickly.
Trusts are also good options when beneficiaries are minors. Giving children direct access to large sums of money is usually ill-advised, even if a child is extraordinarily responsible or trustworthy. Instead, a trust can hold the funds for either their future use or current needs and prevent them from engaging in unnecessary spending.
Retirement accounts are heavily taxed, which can eat up a large portion of a person’s inheritance. Although trusts are not an impenetrable shield against any and all taxation, they can be fairly effective when implemented correctly. By incorporating trusts into the estate planning process, Tennessee residents can usually create a more comprehensive and effective plan.