[WSBAPT] IRA to Beneficiaries of a Descendant's Trust (Beneficiary Language for Plan Administrator)

Fri Aug 26 11:06:47 PDT 2016

Hi David,
Although it is possible to draft an IRA trust that allows the trustee to retain required minimum distributions while still qualifying as a designated beneficiary, conduit trusts – which require the trustee to distribute RMD – are much simpler and less likely to create income tax or designated-beneficiary issues.
In this case, your clients are telling you that they don’t want their grandchildren to receive a large inheritance prior to age 30. If the grandparents left a $1 million IRA to a conduit trust for their grandchildren’s benefit, when the oldest was 25, the trustee would be required to distribute the entire RMD among the trust beneficiaries – but the RMD in this case would be about $17,000. And, it appears this would only occur if grandchildren’s father had already passed, so the grandkids might actually need the money.
If the grandparents were my clients, I would strongly recommend the conduit trust, even though the grandkids would receive minor distributions before age 30, and I would try to help them understand that, in the unlikely event the grandchildren inherit the IRA, a potential early withdrawal from the inherited IRA creates a more substantial financial risk than relatively small distributions.
Hope this helps,
John

John Creahan
206-621-5848
www.cairn-law.com<http://www.cairn-law.com/>

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of David Faber
Sent: Thursday, August 25, 2016 10:17 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] IRA to Beneficiaries of a Descendant's Trust (Beneficiary Language for Plan Administrator)

Jared,

UTMA is a reasonable option. The problem we face, however, is that the client is keen on 30 being the age that the grandkids receive the IRA free of trust. The difference between 25 and 30 can be night and day... Now I am wrestling with the language trying to make sure that we navigate the income tax issues but having significant trouble wrapping my head around all of the details in the rules.

Best,
David J. Faber
Faber Feinson PLLC
210 Polk Street, Suite 1
Port Townsend, WA 98368
(360) 379-4110

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On Tue, Aug 23, 2016 at 7:10 PM, Jared E. Adams <jared at condieadams.com<mailto:jared at condieadams.com>> wrote:
Why not consider naming the grandchildren as the contingent beneficiaries, but designating a custodian under the Uniform Transfers to Minors Act?  Under RCW 11.114.200, you can elect to extend the custodianship until a beneficiary is 25.  It’s not customizable like a trust, but you avoid the income tax problems associated with putting retirement accounts into trust.

Jared

Jared E. Adams, JD, LL.M.

Condie & Adams, PLLC
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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>] On Behalf Of Derek Jensen
Sent: Tuesday, August 23, 2016 1:23 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] IRA to Beneficiaries of a Descendant's Trust (Beneficiary Language for Plan Administrator)

David,

Natalie Choate has a whole host of beneficiary designation forms (one of which may meet your needs) and related discussions in her book. You can know subscribe to a digital version of her book, “Life and Death Planning for Retirement Benefits” for $9/ month on a month to month basis from her web site https://www.ataxplan.com/.

Also, since so many income bad tax results can happen with a distribution plan like you have described, be aware of the accumulation trust issues for naming the trust as a designated beneficiary. It would be terrible to get stuck with a 5 year distribution requirement and a tax rate of 39.6% on everything over $12,000 or so a year.

Sincerely,

Derek W. Jensen, JD, LLM
Managing Attorney

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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of David Faber
Sent: Tuesday, August 23, 2016 12:18 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] IRA to Beneficiaries of a Descendant's Trust (Beneficiary Language for Plan Administrator)

WSBAPT List:

I am working with an unmarried client who just lost one or their two children, which has left them dwelling on the "what ifs" of losing their other child. The bulk of the client's assets are held in IRA and they are still working. The client has named their surviving child as the first contingent beneficiary of the IRA and wants their grandchildren to be the beneficiaries if their surviving child predeceases. The complicating factor is that the client does not want the grandkids (who are all quite young--not even school-age yet) receiving a large supply of money before they can learn the value of money and instead only wants the kids to receive the money upon reaching the age of thirty. I believe I have amended the client's trust with sufficient language to allow the Trustee to administer the IRA, but I want to make sure I'm providing proper language to the plan administrator. Does anyone have example language that they provide the client to send to their plan administrator for this purpose that they would be willing to share?

Best,
David J. Faber
Faber Feinson PLLC
210 Polk Street, Suite 1
Port Townsend, WA 98368
(360) 379-4110<tel:%28360%29%20379-4110>

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