Our permanently disable son has a 3rd and a first party special needs trust and he will need to remain on public benefits throughout his life due to in home health care requirements. The first party trust houses an injury settlement made up of a tax free annuity and a lump sum. The lump sum is not currently required and is invested for my son’s future. With only income being qualified dividends
of around 40k taxes are still zero.

Wife and I are in the process of updating our family trust and understand that giving our son (or his trustee)the ability to stretch our IRA’s over our son’s lifetime is a well documented procedure. However the MRD funds cannot be given to him in cash and can only be used to purchase goods and services for his sole benefit.

Our question is: What do we do to insure that the eventual trustee of the special needs trusts can direct the MRD’s to the 1st party trust which has grantor status and individual rates rather than the third party SPL trust with it’s accelerated trust tax rates. Our other assets (brokerage an realestate)will go to the third party trust as is the normal case.

Using an Inherited IRA MRD calculator it looks like the MRD’s on our death will quickly top 100,000 per year and only go up from there until the end. The tax difference between trust and individual rates is substantial and this could result in an annual tax savings in the ten’s of thousands if the MRD’s are taxed at son’s rate rather than trust rates.

I read the article at http://www.cilaw.com/index.php?p=45
and the Private Letter Ruling 200620025 but don’t know if this can be set up years in advance or if it even applies ?

I am aware of the payback provision of the first party trust but there are no other heirs and I want to maximize
funds available for our son’s benefit.

Thanks for your thoughts.

Al