IRAS AND TRUSTS
David B. McKinney
IRAs
SCOPE.ALL IRAS EXCEPT ROTHS.
MANY QUALIFIED DC PLANS.
IRAs
PLAN TERMS CAN REDUCE YOUR OPTIONS.DC PLANS – REAL CONCERN.
“BIG BOX” PROVIDERS.
IRA TAX BASICS
INCOME – ALWAYS TAXED WHEN DISTRIBUTED.
TAXED WHEN ASSIGNED.DON’T ASSIGN OWNERSHIP TO A TRUST OR FLP!
IRA TAX BASICS
ESTATE TAX:NO STEPUP.WITHDRAW: TWO TAXES!
SELL STEPPED-UP ASSETS TO PAY.
IRA TAX BASICS
HORROR STORY:$1,000,000 IRA. AT DEATH:( 400,000) ESTATE TAX @40%
( 240,000) INCOME TAX @40%
$ 360,000 NET TO FAMILY
IRA TAX BASICS
OKLAHOMA MAY EXEMPT SOME DISTRIBUTIONS FROM STATE INCOME TAX.
IRA TAX PLANNING
BEST SOURCE OF AFTER-DEATH CHARITABLE BEQUESTS:NO ESTATE OR INCOME TAX.
IRA TAX PLANNING
INSTALLMENTS: DEFER INCOME TAX.RMDS.
IRA TAX PLANNING
“LIFE EXPECTANCY”:65: ABOUT 88.MARRIED, BOTH 65: ABOUT 92.
AGE 90 RULE.
IRA TAX PLANNING
PLANNING FOR DEATH:Pay: 1 Yr., or 5 Yrs. or RMD.
OLDEST RMD FOR ALL. ▪SEPARATE ACCOUNTS.
NO RECALCULATION.
IRA TAX PLANNING
BENEFICIARY CAN ELECT:INSTALLMENTS.
▪NOT IN 401(k)/DC? BUT ROLLOVER …
IMMEDIATE PAYMENT.
IRA TAX PLANNING
BENEFICIARY CAN INVEST.
MULTIPLE BENEFICIARIES.
TRUST AS BENEFICIARY
WHY WOULD YOU DO IT?
IRA TAX PLANNING
VALID, IRREVOCABLE, TRUST.HUMAN BEINGS AS BENEFICIARIES.
IDENTIFIABLE UNDER ALL POSSIBLE SCENARIOS.
THE ADMINISTRATOR HAS A COPY OF THE TRUST OR LIST OF ALL BENEFICIARIES & CONDITIONS TO ENTITLEMENT.
(a)The trust must be a valid trust under state law;(a)The trust must be irrevocable or become irrevocable upon the IRA owner’s death;(b)The trust must have identifiable beneficiaries who are to receive the interest in the IRA; and(c)The trust document (or a certified list of all beneficiaries, including contingent and remainder beneficiaries, and a description of conditions on their entitlement to the interest in the IRA) must be provided to the plan administrator.
IRA CLAUSE FOR TRUSTS
HANDOUT.TRUSTEE CAN ALLOCATE TO CHARITIES OR HUMANS.
PLR RIGHTS.“RESIGN.”EDUCATION.
IRA TAX PLANNING
1099 GOES TO THE TRUSTEE??CHARITIES!POWERS OF APPOINTMENT
DISQUALIFY.REQUIREMENTS FOR SPOUSES?LOCATION OF PROOF – NOTICE
TO ADMINISTRATOR?“BIG BOX” PROVIDERS?
PROBLEMS IN TRUSTS
INSOLVENT TRUST OR BENEFICIARIES.
SHORT-TERM TRUST WITH INSTALLMENTS.
TRUSTEE SOPHISTICATION. INVESTMENT AUTHORITY.OLDEST RMD FOR ALL.FAMILY DISPUTES.
SOLUTIONS:
PLR 201241017: SEPARATE THE IRA INTO ACCOUNTS.
TRUSTEE-TO-TRUSTEE IRA TRANSFERS
EACH IRA IS “INHERITED.” RMD: OLDEST BENEFICIARY.
SEGREGATED TRUST
[DISCUSSION]
SOLUTIONS:
CAN THE TRUSTEE DISCLAIM AND PASS TO INDIVIDUALS?NEED CONSENTS.ATTRIBUTED TO THE BENEFICIARY?
REVIEW THE IRA’S DEFAULT BENEFICIARIES.
SOLUTIONS:
DISTRIBUTE IMMEDIATELY AND PAY THE TAXES.THE DEFERRAL IS NOT WORTH MUCH!
LOCK-IN IRAS
CONCEPT.NEED: FLEXIBLE TRUSTEE.LOCAL TRUSTEES …
LOCK-IN IRAS - REASONS
BLENDED FAMILY.SPENDTHRIFT.AGE GAP.UNSOPHISTICATED TRUSTEE.
LOCK-IN IRAS
INVESTMENT DIRECTION.
CREDITORS – DECEDENT OR BENEFICIARIES.
SHAKY MARRIAGES – BENEFICIARIES.
LOCK-IN IRAS
TRUSTS WITH CHARITIES OR POAs.
MEDICAID.
LOCK-IN IRAS
FLEXIBILITY: YOU CAN DO ANYTHING THAT YOU COULD DO WITH A TRUST.
LOCK-IN IRAs
DISCLAIMERS.QTIP.BYPASS, CREDIT SHELTER, GST TERMS.
LOCK-IN IRAs
EXTRA DISTRIBUTIONS.HEMS OR OTHER STANDARDS.
LOCK-IN IRAS
YOU ALSO CAN:SEPARATE ACCOUNTS & RMDS.
SEPARATE INVESTMENTS.PRE-SET THE INSTALLMENT METHOD.
LOCK-IN IRAS
CURRENT PROJECT: LOCKED-IN IRA WITH MEDICAID SUPPLEMENTAL BENEFIT TRUST TERMS.
LOCK-IN IRAS
AVOID A GENERATION OF INCOME/ESTATE TAXES.
PREVENT SECOND SPOUSE ROLLOVER.
LOCK-IN IRAS
AVOID DISTRIBUTION TO THE DECEDENT’S CREDITORS.