See Through Trust as Beneficiary
Our clients (a husband and wife) would like to name a trust as the beneficiary of both of their IRAs. They want the trust to first provide income to the surviving spouse and then to pay out as a stretch to their 4 children (2 children each from previous marriages). However, they don’t want a taxable event to occur at the death of the IRA holder. Is it possible to set up a See-Through Trust as the beneficiary of their IRAs with the provisions that they want the trust to have? Does anyone have any advice for us to give their estate planning attorney?
Permalink Submitted by Alan Spross on Fri, 2007-08-31 23:01
Yes, this can be done. Scroll down to the post authored by bhenderson on splitting income for further detail.
Permalink Submitted by Al Fry on Sat, 2007-09-01 18:29
I think this can always be a dichotomy. If one has their IRA payable to a see-through, non-conduit trust, the RMD will be based on the oldest bene, usually the spouse, on a single life non-recalc (fixed period) basis. If the spouse outlives the fixed period, there is no stretch-out left from the IRA, it will be fully paid out. On the other hand, of one has their spouse as IRA bene, the spouse can use a slower payout via the Uniform table, recalc. If a see-thru trust or children named as benes after first death, then children could get a stretch. However, the surviving spouse could always change benes (his/her own children; new Trophy spouse, etc.). I think these are tough choices, and need to be thought thru very carefully with a competent estate planning attorney, weighing all options.
Permalink Submitted by Bruce Steiner on Sun, 2007-09-02 00:38
You can certainly leave the IRA in trust for the spouse, and then for the children. Assuming the trust (or the Will containing the trust) is properly drafted, the trustees will be able to stretch the distributions out over the spouse’s life expectancy. As Al Fry pointed out, the tradeoff is that to achieve this control over the principal, you give up the income tax benefits of the spousal rollover (the spouse could roll the IRA over, name new beneficiaries, possibly convert to a Roth, and achieve substantially more income tax deferral).
The lawyer should know how to deal with this. If Tommy is not a lawyer, and if the lawyer needs advice from him, then the client needs another lawyer.
For more on this, see my article “Trusts as Beneficiaries of Retirement Benefits” in the March 2004 issue of the Estates, Gifts and Trusts Journal: http://www.bna.com/tm/tmm0903_steiner.rtf