![]() SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, Photo credit: ©/Andrii Dodonov, ©/shapecharge, ©/ridvan_celik If you’re concerned about leaving loved ones with the burden of paying taxes on your retirement assets when you’re gone, consider converting your traditional IRA account to a Roth account and assuming the tax bill yourself.If you’re ready to find an advisor who can help you achieve your financial goals, get started now. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. Working with a financial advisor can also help you create a financial plan to reach other estate planning goals. Consult an estate-planning attorney if you’re thinking about setting up a see-through trust.While conduit and accumulation trusts may differ in how and when money is distributed by the trust, they both are required under the 2019 SECURE Act to disburse the grantor’s assets within 10 years of the person’s death. Setting up a see-through trust can be a valuable component of estate planning, ensuring that a person’s retirement assets are passed down to beneficiaries of their choosing. As a result, beneficiaries may face steeper tax bills on money they receive from a see-through trust. Spreading distributions out over decades reduced a beneficiary’s tax liability and kept more money in the market for longer.īut the 2019 law requires all assets from the original retirement account to be distributed within 10 years of the original owner’s death. The law altered a provision that allowed non-spouse beneficiaries to “ stretch” distributions over the course many years, if not decades.īefore the SECURE Act, required minimum distributions from inherited IRAs were based on a beneficiary’s life expectancy. See-through trusts and estate planning were in the news after President Donald Trump signed the Setting Every Community Up for Retirement Act (SECURE) into law in late 2019. This trust is payable-on-death to the beneficiary named in the account. Beneficiaries can access assets only at a predetermined time. This trust becomes irrevocable upon the owner’s death, and is established through a last will and testament. Beneficiaries could access income or interest earned from assets but may be excluded from getting the principal amount. This trust structures and limits beneficiary access to assets to avoid misuse. This is an irrevocable trust that is designated as the beneficiary of a life insurance policy to avoid estate taxes on policy payouts.Įstablished to pay for medical care or day-to-day expenses of special needs dependents, which allows them to remain eligible for government benefits. This protects remaining assets for beneficiaries who will inherit remaining assets tax-free.Įstablished to divide assets between specific charities and beneficiaries, or pass on remaining assets to a designated charity.Įstablished to pass assets to grandchildren while allowing children to potentially access income generated from those assets tax-free. This is an irrevocable trust where the surviving spouse manages assets but doesn’t inherit. ![]() But heirs must pay taxes on remaining assets that they inherit.īypass Trust (“B” or Credit Shelter Trust)Įstablished to reduce estate tax for heirs. This allows surviving spouses to avoid paying taxes on assets during their lifetimes. The surviving spouse gets assets in the trust along with any income. While a conduit beneficiary will pay income tax on the money they receive, distributions from accumulation trusts are typically taxed at higher rates.įor reference, the table below briefly compares the advantages of nine other common types of trusts: Overview of Different Types of TrustsĮstablished by one spouse for the benefit of the other. The taxes owed on distributions from conduit and accumulation trusts can also vary. An accumulation trust, on the other hand, gives the trustee the authority to pay out or retain distributions within the trust, where the money can continue to grow. ![]() While the two variations ultimately achieve the same goal - distributing retirement assets to beneficiaries - they differ in how the money is doled out and taxed.Īs distributions from a grantor’s retirement account are made to a conduit trust, the trustee immediately transfers those assets to the beneficiaries of the trust. There are generally two types of see-through trusts: conduit and accumulation trusts. ![]()
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