Stop Trusting Trusts in Railroad RetirementRetirement Financial Planning Estate Planning
Do trusts work for your railroad retirement?
Welcome everyone, to the railroad retirement whiteboard. My name's John McNamara of Highball Advisors. Today's topic, we're going to talk about leaving your assets, beneficiaries, that type of thing, when you pass on: what to do with it, how you want to transfer that wealth that you've accumulated through the years onto the people that are important to you? One of the ways we do it is people talk about trusts and the title of this is Stop Trusting Trusts.
There was a big change in legislation that came out in 2019, but it's impacted 2020 in going forward, that's called the Secure Act, and that's going to have an effect on trusts. Let's just take a step back and learn a little bit why people use trusts and what they're there for. Why do you need a trust? That's kind of a buzzword, what are you, a Rockefeller? You need a trust? No. There's reasons to have the trust and there's reasons not to have the trust.
The reasons I have is control. Maybe you have some minor children and you want to leave them assets, retirement assets. They're minors, you don't want to leave a substantial amount of money to an eight year old. That's not a good idea. That's a trust idea. Maybe they're disabled. Maybe you have disabled offspring or any special needs individuals, or even just people that you feel, you know what, if I leave them a lot of money, they're going to blow it. They're unsophisticated around money, so it's a control issue.
But a lot of people think of trusts, well, I'll say trust and I'll avoid taxes. That's not happening anymore. It's very, very rare that you can ever do that with taxes. Just to give you an example, income that comes out of a trust is taxed at 37% on anything over, what was it? $12,950. Just to give you some comparison to that, if you were married and file jointly, before you hit the 37% tax rate, you have to make $622,050, so there's no tax advantage to putting your retirement assets in a trust for the beneficiary from a tax. Control is something else.
Let's talk about it. This is why you don't need a trust. Once I mentioned it, the Secure Act, and what did that do? What did the Secure Act do? It got rid of the stretch IRA. You used to be able to stretch out the IRA and take the RMDs way over time. Now, there's a 10 year rule. That means when you inherit an IRA, let's say, if your father passed or somebody else, and they inherit an IRA, they have to get rid of that money out of that IRA in 10 years. It's the 10 year rule, because the government wants their money.
There's no way to hide from it. You're just going to have to pay the taxes, and depending upon that individual's tax rate, that's what they're going to be taxed at as income when they take distributions out of the IRA. That's the 10 year rule. Even trusts are effected by the 10 year rule. You put the money into a trust, trusts have to get it out in 10 years also, so why am I doing this again?
Let's just wrap it up here. This is just kind of the keep it simple when it comes to the beneficiaries and try not to complicate anything. You put the beneficiaries on the IRA. They have the 10 year rule. It's very streamlined. No legal bills. No lawyers, sophisticated, all, you need the trust, that type of thing. Now, we're not talking about control. Control's a separate issue. If you're talking about taxes, you don't need the trust.
No administration that comes with the trust. To somebody to administer a trust, that costs more money, so at the end of the day, if you have mature adults that you're leaving the money to, that can handle it, avoid the trusts at all costs. All right, so there you go. I hope you found this helpful. Give me a thumbs up. I appreciate that. YouTube likes to see that, it helps grow my audience a little bit more. Please subscribe to my YouTube channel. Reach out to me, John at Highball Advisors, if you have any questions. In the meantime, everyone, please stay safe, stay on track and take care. So long everybody. Bye.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.from Highball Advisors, and all rights are reserved.