IRA Trust Provisions

Submitted by Justin Watling on Fri, 2014-12-19 14:00

A married couple desires to create a stretch IRA Trust for the primary benefit of their three children. They desire that only the RMD be distributed annually to each beneficiary. The Trust will provide that each beneficiary is to receive a 1/3 share (as opposed to a distribution to the class of Grantors’ children)

Is anyone willing to share your trusted provisions in your stretch IRA Trusts that will achieve the following: Enable each beneficiary’s distribution to be computed using that beneficiary’s age.

Also, it is intended that if a beneficiary dies before a complete distribution of his/her share has been made, the remainder of the share will be distributed to his/her issue/lineal descendants (or to the other primary beneficiaries if there is no issue/descendant of the deceased beneficiary). Is it true that once the RMD factor has been established for the primary beneficiary that factor carries through to the issue/descendants (or other primary beneficiaries) if the primary beneficiary does indeed die with an undistributed portion remaining?



Submitted by Bruce Steiner on Sun, 2014-12-21 18:42

I won’t provide forms, but you might take a look at my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal, which may be helpful to you in drafting the necessary provisions:  http://www.kkwc.com/docs/AR20041209132954.pdf.  Note that it doesn’t make sense to tie the distributions from the trust to the beneficiaries to the distributions from the IRA to the trust.  In almost all cases, the trustees should be able to distribute to the beneficiaries however much or little they deem appropriate from time to time.

Submitted by Justin Watling on Sun, 2014-12-21 19:29

there is a substantial age disparity between the oldest and youngest beneficiary, so clients desire to use that yongest age as a part of the RMD calculation to maximize the stretch period. 

Submitted by Bruce Steiner on Sun, 2014-12-21 19:37

  • If you leave an IRA to a child in trust, usually the oldest child is the measuring life, since the oldest child is usually a contingent beneficiary (if the child dies without leaving any issue, and without exercising his/her power of appointment).
  • You can avoid this by using a conduit trust, in which the younger child has to receive all of the amounts distributed from the IRA.  However, conduit trusts rarely if ever make any sense.  If the younger child lives to life expectancy, which is what you would expect to happen, nothing will be left in the trust, and all of the IRA benefits will be thrown into his/her estate, and exposed to his/her creditors and spouses.
  • A better way to avoid having to use the oldest child’s life expectancy is to eliminate the oldest child as a contingent remainder beneficiary of the youngest child’s trust.  If the youngest child dies without leaving any issue and without exercising his/her power of appointment, the share that would otherwise have been added to the oldest child’s trust would then go to the oldest’s child’s issue (in separate trusts for their benefit).  That doesn’t really give up that much flexibility, since it’s unlikely that the youngest child will die without leaving any issue, without exercising his/her power of appointment, and survived by the oldest child at a time when the oldest child has no issue.

Add new comment

Log in or register to post comments