Splitting income and principal to different benis?
I have a client who would like to set up her bene designations so that her husband gets the income, and her children get the assets on her 401k and IRA plans.
Is a trust her best option (intervivos or testamentary)?
Are there other options?
Are options different for her 401k?
Permalink Submitted by Alan Spross on Wed, 2007-08-29 04:36
A trust is the only option I am aware of that can establish a vehicle to control distributions. There may some key provisions or characteristics to be included in such a trust. Perhaps Bruce Steiner will comment further on this. There would not be a different treatment between 401 K and IRA accounts, but the 401k may require certain timely elections to avoid the 5 year rule. Some stretching capability would also be lost because even if the trust is properly qualified, the children will not get an additional stretch after death of the income beneficiary. Another issue is the definition of income that would apply to the RMD under the UPIA applicable in the state. That is, how much “income” can the husband draw out of the IRA irrepective of the RMD?
Permalink Submitted by Bruce Steiner on Wed, 2007-08-29 22:49
Alan is correct.
For more on this, see my article on trusts as beneficiaries, in the March 2004 issue of the BNA Tax Management Estates, Gifts and Trusts Journal: http://www.bna.com/tm/tmm0903_steiner.rtf