Permalink Submitted by Bruce Steiner on Fri, 2007-10-12 19:51
It’s mainly a catchy name, and a marketing gimmick.
To get the stretchout where a trust is the beneficiary of an IRA, none of the accumulated IRA distributions can ever go to anyone older than the oldest beneficiary of the trust whose life expectancy is used to determine the stretchout period. But anyone drafting trusts that will be the beneficiary of IRA benefits should know that.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by William Newton on Fri, 2007-10-12 20:06
still a little confused on the above named trust: I have been told that this trust has some more teeth than qualified living trust in the areas of protection against divorce, lawsuit, spendthrift kids, etc such as -stopping and starting of distribtions, creating separate trusts so that beneficiaries can take distributions over their own lifetime, and maybe other benefits…any truth to this?
Permalink Submitted by Bruce Steiner on Fri, 2007-10-12 20:30
As I said before, it’s just a catchy name and a marketing gimmick.
We generally recommend that clients provide for their children in trust rather than outright. In this way, as you pointed out, the child’s inheritances will be better protected against the child’s potential creditors (including spouses), and will also not be included in the child’s estate for estate tax purposes. The same reasons for leaving other assets to a child in trust rather than outright apply to IRA benefits. But in the case of IRA benefits, you have to draft carefully to make sure that none of the IRA benefits can ever go (for example, upon the child’s death) to anyone older than the oldest beneficiary of the trust whose life expectancy you want to use for purposes of the stretchout.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Al Fry on Sun, 2007-10-14 20:58
Bruce, at the Notre Dame Estate Planning Institute last week one of the speakers mentioned a type of trust that would be used only for the IRA distribution. It had one sub-trust for each beneficiary. Natalie also mentioned having each trust bene named as bene of the IRA for their share, and paid to them as outlined in the trust agreement. In other words, it still went to their trust, but was separated first.
Permalink Submitted by Bruce Steiner on Sun, 2007-10-14 22:20
In order to have IRA benefits payable to a trust such that you get the stretchout, none of the accumulated IRA benefits can ever go to anyone older than the oldest beneficiary of the trust whose life you want to use as the measuring life. As a practical matter (unless the non-IRA assets are sufficiently small that you don’t mind subjecting the non-IRA assets to the same restrictions), the trust that receives the child’s share of the IRA benefits will be separate from the trust that receives the child’s share of the non-IRA assets (though both trusts can be set up under the same Will or other trust instrument).
Whether to create a single trust to receive the IRA that will divide into separate trusts for each child, or to create a separate trust to receive each child’s share of the IRA, is a matter of style. Having a single trust to receive the IRA that divides into separate trusts for each child makes the beneficiary designation easier to draft, but makes for more work dealing with the custodian after death. Having separate trusts for each child’s share of the IRA makes drafting the beneficiary designation more difficult to draft (and sometimes to get the custodian to accept), but makes it easier to deal with the custodian after death. There isn’t any substantive difference between the two.
I’ll be seeing Natalie again in about a week and a half. She and I are both speaking on planning for IRAs (though on different panels). Al: should I give her your regards if I have a chance?
Al: please let me know privately who you were referring to that spoke at the Notre Dame program.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Bruce Steiner on Fri, 2007-10-12 19:51
It’s mainly a catchy name, and a marketing gimmick.
To get the stretchout where a trust is the beneficiary of an IRA, none of the accumulated IRA distributions can ever go to anyone older than the oldest beneficiary of the trust whose life expectancy is used to determine the stretchout period. But anyone drafting trusts that will be the beneficiary of IRA benefits should know that.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by William Newton on Fri, 2007-10-12 20:06
still a little confused on the above named trust: I have been told that this trust has some more teeth than qualified living trust in the areas of protection against divorce, lawsuit, spendthrift kids, etc such as -stopping and starting of distribtions, creating separate trusts so that beneficiaries can take distributions over their own lifetime, and maybe other benefits…any truth to this?
Permalink Submitted by Bruce Steiner on Fri, 2007-10-12 20:30
As I said before, it’s just a catchy name and a marketing gimmick.
We generally recommend that clients provide for their children in trust rather than outright. In this way, as you pointed out, the child’s inheritances will be better protected against the child’s potential creditors (including spouses), and will also not be included in the child’s estate for estate tax purposes. The same reasons for leaving other assets to a child in trust rather than outright apply to IRA benefits. But in the case of IRA benefits, you have to draft carefully to make sure that none of the IRA benefits can ever go (for example, upon the child’s death) to anyone older than the oldest beneficiary of the trust whose life expectancy you want to use for purposes of the stretchout.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Al Fry on Sun, 2007-10-14 20:58
Bruce, at the Notre Dame Estate Planning Institute last week one of the speakers mentioned a type of trust that would be used only for the IRA distribution. It had one sub-trust for each beneficiary. Natalie also mentioned having each trust bene named as bene of the IRA for their share, and paid to them as outlined in the trust agreement. In other words, it still went to their trust, but was separated first.
Permalink Submitted by Bruce Steiner on Sun, 2007-10-14 22:20
In order to have IRA benefits payable to a trust such that you get the stretchout, none of the accumulated IRA benefits can ever go to anyone older than the oldest beneficiary of the trust whose life you want to use as the measuring life. As a practical matter (unless the non-IRA assets are sufficiently small that you don’t mind subjecting the non-IRA assets to the same restrictions), the trust that receives the child’s share of the IRA benefits will be separate from the trust that receives the child’s share of the non-IRA assets (though both trusts can be set up under the same Will or other trust instrument).
Whether to create a single trust to receive the IRA that will divide into separate trusts for each child, or to create a separate trust to receive each child’s share of the IRA, is a matter of style. Having a single trust to receive the IRA that divides into separate trusts for each child makes the beneficiary designation easier to draft, but makes for more work dealing with the custodian after death. Having separate trusts for each child’s share of the IRA makes drafting the beneficiary designation more difficult to draft (and sometimes to get the custodian to accept), but makes it easier to deal with the custodian after death. There isn’t any substantive difference between the two.
I’ll be seeing Natalie again in about a week and a half. She and I are both speaking on planning for IRAs (though on different panels). Al: should I give her your regards if I have a chance?
Al: please let me know privately who you were referring to that spoke at the Notre Dame program.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Al Fry on Mon, 2007-10-15 00:17
Sure.