Patent Pending Retirement Trust for Baby Boomers’ Children

William E. Hesch Law Firm, LLC

3047 Madison Road, Suite 205

Cincinnati, OH 45209

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Patent Pending Retirement Trust for Baby Boomers’ Children

The Patent Pending Retirement Trust is an innovative trust idea that William E. Hesch, Esq., CPA, PFS created when working on an estate plan for his millennial children.  Bill was worried about his children planning for their retirement, and was trying to think of creative ways in which he could ensure that the two of them would have a sufficient amount of money to live off of when they reached retirement age.  Using his expertise in estate planning law, wills and trust law, asset protection planning and tax planning from his years of experience as an attorney, CPA, and financial planner (PFS) Bill created a Retirement Trust for his children.  In its simplest form the Retirement Trust is a trust meant to be a retirement plan for the Grantor’s children who do not expect Social Security to be, much of any help to them in thirty (30) years.

After using the trust for his estate plan, he began sharing the idea with clients over the past three years, to gauge whether or not there was a need in the estate planning market for such an instrument.  Many clients loved the concept and have in fact requested a Retirement Trust for their own estate plan.  Due to the positive reaction from his clients, Bill filed for a patent in August, 2018 and the Retirement Trust became “patent pending” in August, 2019.

Why use a Retirement Trust?

It is well known that the younger generations are not saving enough for their retirement.  Millennials are not saving for retirement in their 401(K)s and IRAs, and social security may not provide much retirement income for the generations that follow the baby boomers.  The main purpose for the Retirement Trust is to provide financial security for Grantor’s children in their retirement years.  A Retirement Trust allows the Grantor (or Grantors) to hold assets in a trust for the benefit of their children until their children reach an age specified by said Grantor, typically sixty-two (62) years of age. Upon reaching age sixty-two (62), the children begin receiving monthly distributions of retirement income, as provided for in the trust document.  There are a number of features the Grantor had customized in the instrument for his or her specific situation.

Who are the clients using Retirement Trusts?

This trust is typically used by baby boomer clients whose children are already old enough to be out of college and in the work force.  These clients want the benefits of using a revocable trust in their estate plans but are concerned with their children’s (or other beneficiaries’) financial security when they retire.  They have these concerns for many reasons, including: (1) their children’s past financial decision making; (2) have children who are entrepreneurs and are worried those children won’t have a nest egg for their retirement; (3) their children have potential creditor problems and don’t want them inheriting trust assets outright in a lump sum distribution; or (4) they believe social security benefits will not be there for their children.  It is a fact that seventy percent (70%) of lottery winners end up bankrupt in just a few years after receiving a large financial windfall.  It is not hard to believe that many children receiving a substantial windfall all at once from their parent, in their thirties or forties, may suffer the same fate.

How does the Retirement Trust work?

The Retirement Trust is a revocable trust that becomes irrevocable upon the death of the Grantor or both Grantors.  Upon the death of the Grantor, the trust is divided into sub trusts for each child.  Each child has the right to certain monthly distributions of their sub trust until that child reaches retirement age, typically age sixty-two (62).

Required distributions before reaching age sixty-two (62).

The Grantor has a choice of the method in which the required distributions before reaching the age of retirement are distributed, but it is commonly one or more of the following options: (1) a fixed dollar amount of the trust income and principal each year, adjusted for inflation annually (i.e. $20k); (2) a fixed percentage of the trust principal each year (i.e. 4% which would allow the trust nest egg to grow, while supplementing beneficiary’s income.); and (3) the Grantor may attach a work requirement to the beneficiary’s distributions before reaching the designated retirement age.  If a child becomes disabled, monthly payments commence for early retirement.

Distributions upon reaching the age of retirement.

Once the child reaches age sixty-two (62), the balance of assets remaining in that child’s sub trust are totaled and that child is entitled to a monthly annuity payment using the average monthly payment amounts that would be payed from Northwestern Mutual and New York Life annuities, payable for the remainder of that child’s life.  Typically, the trust will outline that payments shall be paid monthly beginning on the last day of the month in which the child turns sixty-two (62).

Northwestern Mutual and New York Life do not need to be the insurance companies identified in this section of the Trust.  Any insurance company’s annuities or actuarial tables or the IRS life expectancy tables can be used to compute a monthly benefit to be payable for that child’s life.  To clarify, an annuity is not actually purchased from one of these insurance companies.  The Trustee simply obtains a quote from each insurance company and pays from the trust the equivalent of the average monthly annuity payment that would have been paid from those insurance companies had an annuity actually been purchased.

For more information about this creative, innovative, Patent Pending Retirement Trust, call Bill Hesch to set up a free 30-minute initial consultation at 513-509-7829.

(Legal Disclaimer:  William E. Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)