Getting separate ruling from IRS on pass thru trust setup
My beneficiaries of my IRA are my wife (25%), and 5 children (15%)each. Recently I created 5 individual and separate pass thru trusts for the 5 children. It is set up so they will receive monies yearly based on their own individual age indicated by the life time schedule provided by the IRS.
My attorney drew up the trusts and the fiduciary will be Fidelity Investment Company, handling the administration and yearly payout etc.
The loose end of this all, in my mind anyway, is how do I know for sure that the IRS will recognize the trusts as being setup properly? So, how does one go about seeking a private ruling from the IRS on the way the trust is written etc. Where do I start?
Any advice and guidance would be appreciated. Thank you.
Permalink Submitted by Bruce Steiner on Wed, 2014-08-13 19:16
After your death, the lawyer handling your estate, or some other lawyer if the lawyer handling the estate doesn’t want to, can apply to the IRS for a private letter ruling. The lawyer will know how to do it. We’ve obtained many private letter rulings.The more important issue is that you said that your children “will receive moneys yearly based on their … age ….” The trusts have to take distributions based on your children’s ages. However, you don’t have to require that the trustees distribute these amounts to your children. Why did you require that the IRA distributions be paid out, instead of giving the trustees discretion over distributions? By requiring distributions, if the children live to life expectancy, all of the IRA benefits will be thrown into their estates, and exposed to their creditors and spouses. For more on trusts as beneficiaries of retirement benefits, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf.