The Listen to Lawrence Letter: Can retirement accounts be put in a trust?

CLIENT QUESTION:

A question for Lawrence:   My understanding is that retirement accounts (IRA, 401K, 403B, Roth) cannot be put in a trust. Other than my home, most of our assets are in retirement accounts. I’ve been making withdrawals year by year while staying in my current tax bracket. What do you think?

MY RESPONSE:

This is a question we get every day because this is the profile of the typical “elder law” client on Long Island. That is a client whose major assets consist of a house and retirement plans. Since retirement assets are essentially EXEMPT from Medicaid as an asset (although not as income) there is not the same compelling reason to transfer the retirement plans to protect them from Medicaid. It would be nice if we could transfer them to save the income (or RMD-like payments pursuant to Medicaid’s tables) but alas it would be foolish to do so. Why? Because it would trigger the income tax on the entire amount in the plan. So, we can transfer the retirement plans to a trust, but they would lose their tax deferral status; so we never (or rarely ever) would do such a transfer. This is why most of our clients just put their house(s) in the trust (plus any other non-retirement assets they wish to protect).

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