Retirement Accumulation Trusts
In our planning for our clients we have worked for years with an attorney who includes retirement benefits trusts (RBT) in the trusts & wills he drafts. We have set up many RBT’s for clients children who inherit IRA assets. As I review the RBT’s I notice they all worded as conduit trusts & not accumulations trusts which many responses on your website seem to recommend over conduit trusts mainly for asset protection purposes.
Is the accumulation trust a second/ additional trust which is established along with the RBT to receive the annual RMD’s? The RMD I am thinking must be distributed outside the IRA so it can be accounted for as being distributed from the IRA…correct? The RMD cannot be held in the RBT can it? The RMD must be distributed out of the IRA, so an additional irrevocable trust (with creditor protection) would have to be established to receive the RMD…correct?
Am I thinking correctly? What must we do & is there particular language we may need to get over to the attorney to accomplish this step in the planning.
Thank you,
Ed
Permalink Submitted by Bruce Steiner on Fri, 2014-08-01 21:49
The trusts that receive the IRA benefits can be either discretionary (accumulation) or conduit trusts. Conduit trusts rarely if ever make any sense. They throw the assets into the beneficiary’s estate for estate tax purposes, and expose them to the beneficiary’s creditors and spouses, thus defeating the purposes of the trust. For more on this, see my article in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf. The trusts that receive the IRA benefits can be in the Will, or in a separate trust instrument. In a discretionary trust, the trustees can accumulate the IRA distributions. If the lawyer needs you (assuming you’re not a lawyer) to give him/her language, you should be looking for another lawyer.