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Setting Up a Trust to Protect Retirement Savings, Part One

Say you have worked for 45 years as a public school teacher, diligently putting money into a retirement account for both your future and your children's inheritance. As you are beginning to look at leaving these assets to your loved ones, you take into consideration the possibility that your children may burn through the money quickly without a second thought.

You did not work for more than half your life to have your hard-earned savings spent without discretion in a few years, so what are your options?

For quite a few parents building their estate plans, setting up a trust has come into play as a viable solution to that very problem. It is not always about children with expensive tastes, either. Children in rocky marriages or in danger of a lawsuit could also see their parents' retirement accounts bled dry in a short amount of time.

As an aside, for parents thinking about setting up Roth IRAs for their children, these would usually be protected from creditors. However, courts across the country have reached different verdicts on whether or not such protection is extended if the IRA is inherited.

Setting up a trust with their child as the beneficiary allows parents to ensure that money is released more consistently and in smaller amounts. This prevents a child or loved one from spending or losing all the money at once.

There are some problems involved in setting up trusts, which will be discussed in the next post.

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