It has been estimated that “qualified retirement benefits, IRAs, and life insurance proceeds may constitute as much as 75 to 80 percent of the intangible wealth of most middle-class Americans.”* Without planning, the law makes retirement benefits subject to estate AND income taxes at death (see chart at left).

Much of this tax liability can be minimized by stretching out the plan over the lifetime of a beneficiary, and coordinating the plan with the will or revocable trust in order to prevent funding the estate tax bill with plan assets. It is important to note that simply naming an individual beneficiary is not a guarantee that you will stretch out plan benefits. It certainly does nothing to prevent plan assets from being subject to estate tax.

The Law Offices of John C. Martin advises clients on ways to plan to minimize estate and income tax, coordinate beneficiary designations with the estate plan, and keep retirement plan assets in trust during a beneficiary’s lifetime. In particular, we advise clients on establishing Retirement Trusts. A Retirement Trust is a separate revocable trust which is named as beneficiary of your retirement plan. Naming a properly drafted Retirement Trust and coordinating the terms with the rest of your estate plan usually offers a much better tax result than naming an individual beneficiary. It also offers asset protection planning and legacy planning benefits. Please call us at 650.329.9500 if you would like more information.

* L. Mezzulo, An Estate Planner’s Guide to Qualified Retirement Plan Benefits (ABA Publications, 4th ed. 2007) at 1.