Should You Set Up a Retirement Trust?

By Brett Gottlieb

Building wealth is only one aspect of retirement planning. It also requires careful consideration of how your assets are divided and handled after your death. If you have doubts about your beneficiaries’ ability to manage a large inheritance responsibly, having a retirement trust may be important to you.

But retirement trusts aren’t for everybody. It’s critical to fully consider both the advantages and disadvantages of retirement trusts to determine if it’s the right choice for you.

What Is a Retirement Trust?

In a retirement trust, the grantor gives a trustee ownership of retirement assets, including 401(k)s, IRAs, and other retirement accounts. These assets are managed by the trustee according to the precise guidelines and conditions specified in the trust agreement.

The trust controls how and when your assets are allocated. This allows you to manage the inheritance process and potentially shield beneficiaries from creditors, poor management, and other vulnerabilities. 

Advantages of a Retirement Trust

Several situations make a retirement trust a powerful option for safeguarding your beneficiaries: 

Blended families: A retirement trust can reduce the likelihood of conflict within a blended family by verifying that assets are allocated equitably and in accordance with the grantor’s wishes. The trust can specify precisely how assets are allocated to children from various partnerships.

• Financial management: If they are young, lack financial skills, or have a history of financial instability, a trust can verify your beneficiaries’ inheritance is handled sensibly. The trustee can shield beneficiaries from squandering their inheritance by making investment choices, paying bills, and allocating cash in accordance with trust directives.
• Creditors: A trust can shield your beneficiaries’ inheritance from creditors if they have a history of financial difficulties or work in occupations that have a significant liability risk, such as doctors or business owners. In general, assets maintained in a well-structured trust are shielded from debt collection and legal judgements. 
• Special needs: For beneficiaries with disabilities or special needs, a special needs retirement trust can retain their eligibility for government benefits while still providing for their care and support. The trustee has the authority to administer the money in a way that enhances government support rather than taking its place.
• Blended families: A retirement trust can reduce the likelihood of conflict within a blended family by verifying that assets are allocated equitably and in accordance with the grantor’s wishes. The trust can specify precisely how assets are allocated to children from various partnerships.

Disadvantages of a Retirement Trust

After exploring the advantages of setting up a retirement trust, it’s critical to take a look at the downsides as well so you can make an informed decision about whether or not it’s right for you.

• Cost: Setting up and administering a trust is much costlier than a simple will. There may be significant legal fees for creating the trust document, trustee fees for managing the trust (should you not be your own trustee), and ongoing administrative expenses (tax preparation, accounting, etc.).
• Complexity: Trust agreements are typically complicated legal documents. Even sophisticated people may find it difficult to comprehend the jargon and navigate the complexities of trust administration.
• Inflexibility: Irrevocable trusts, often used for estate tax planning, offer very little flexibility. Generally, once assets are placed in an irrevocable trust, they cannot be easily accessed or modified, even if the circumstances of your beneficiaries change dramatically.
• Administrative burden: Keeping thorough records, managing investments, filing tax returns, allocating cash to beneficiaries in accordance with the conditions of the trust, and managing investments are all part of managing a trust. For the trustee, this can be a major burden, particularly if the trustee is a friend or family member with no prior trust administration experience.
• Unnecessary complexity: Many people may find that a basic will is more than sufficient for their estates and family circumstances. Setting up a trust when it’s not truly necessary can add a layer of cost and complexity without providing any real benefits. In certain situations, beneficiaries may actually find it more challenging to access and administer their inheritance.

Reach Out for Guidance

Establishing a retirement trust is a complex decision that should not be attempted without professional guidance from a qualified financial advisor  and an estate planning attorney. The right financial advisor can evaluate your unique needs and objectives and help you design a retirement strategy that is right for you. 

That’s where we come in. Our team at Comprehensive Advisor strives to serve our clients throughout the entire financial planning process through deep and meaningful relationships that last for generations. If you’re interested in partnering up for your financial journey, reach out by sending an email to info@ComprehensiveAdvisor.com or calling (760) 813-2125.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial strategies for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a comprehensive retirement roadmap to help ensure their assets are preserved and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Insurance products are offered through the insurance business C.A. Financial & Insurance Services. Comprehensive Advisor, LLC is an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by C.A. Financial & Insurance Services are not subject to investment Advisor requirements. CA Ins. Lic. #6000262.  2911219 – 2/25