When you pass away, your Stretchout Protection Trust and supporting documents provide the trustee with instructions regarding the proper retitling of the account. Let’s look at an example:
John Doe is the IRA owner. John has one daughter, Mary. During his lifetime, John Doe establishes the John Doe Stretchout Protection Trust. After establishing the John Doe Stretchout Protection Trust, John updates the beneficiary designation on his retirement account to name the John Doe Stretchout Protection Trust as the beneficiary of the account.
When John Doe dies, the retirement account does not roll over into Mary’s name. Instead, it gets retitled as the John Doe IRA for the benefit of Mary Doe’s separate share under the John Doe Stretchout Protection Trust.
Each year, the Required Minimum Distribution gets distributed from the retirement account into the Stretchout Protection Trust. From there, the Trustee of the Stretchout Protection Trust can decide whether or not to distribute funds from the Stretchout Protection Trust to Mary directly.
Who’s in Control of the Stretchout Protection Trust?
Per John’s preference, while he was living, he may have appointed Mary to be the Trustee, or he could have nominated a third party to oversee the operation of the Trust.
You decide who has financial control for each beneficiary of the Stretchout Protection Trust. If the beneficiary is a responsible adult, then you might name the beneficiary as trustee of his or her share. However, if the beneficiary is young, irresponsible, or disabled, then you might decide to appoint someone else who is more responsible or able, such as a close friend or family member, as Trustee for the beneficiary.
Within the trust document, you can also include instructions regarding use of the retirement account assets. Again, if your beneficiary is a financially responsible adult—you might give the Trustee-Beneficiary full discretion to decide the best use of the funds and how to distribute these funds accordingly.
But again, if your beneficiary is young, irresponsible, or disabled, then you might choose to give the Trustee more specific instructions regarding the use of said funds.
If your beneficiary is young, then you might specify that he or she has permission to become his or her own Trustee at a certain age.
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IRA & Retirement Plan "Stretchout" Protection Planning Series:
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