To Bruce, if you’re willing to address…

Submitted by Amar Patel on Sat, 2016-07-16 01:50

Hi Bruce, I’ve posted here for a while now, and I’ve learned a ton from you and Alan and so many others. Thanks for sharing some education to make myself smarter when working with my advisors!

To that point, I’ve made several printouts of your posts here and articles you’ve linked to on how to create trusts for receiving retirement assets on the behalf of a minor, and delivered them to a local estate planning attorney. I did this after the attorney suggested a conduit trust is what he uses, apparently in-line with what Natalie Choate recommends. But knowing what you’ve posted and published, I figured the printouts might inform the local attorney of another viable option.

Even after a (supposed) review, he still came back with a recommendation of a conduit trust. This attorney’s point (I think) is that using the accumulation approach with a significantly older contingent beneficiary will shorten the stretch. Using a conduit approach does not do this, and those assets that do pass out from the retirement vehicles can be placed in a UTMA bank account and still be kept out of the hands of the yet-to-mature child (yet still used for his benefit only), to age 21 in Indiana. Protecting the child from himself is the primary goal I think.

How does your approach to using something other than conduit trusts avoid reducing the stretch? I’ve seen where you have noted finding strictly younger contingent beneficiaries, but none can be found in our case (our child is an only child and is only 4 weeks old). Or I’ve read about providing for a power of appointment to name a younger issue of mine as contingent beneficiary in the future, if not immediately. (Perhaps that was not you… I’ve spent hours searching all over the internet, so please feel free to correct that if I’m placing words in your mouth incorrectly.)

The local attorney urged caution even after reviewing PLR 201320021, where younger beneficiaries were never named and the power of appointment was never exercised. That was because 1) like many, he believes the IRS could reverse that position on everyone other than the petitioning party and 2) not naming beneficiaries could result in leaving out my family tree if I pass first and everything goes to my wife first before then being distributed to her tree (or vice versa).

What if anything can I take back to the attorney to help him better understand your approach?



Submitted by Bruce Steiner on Sun, 2016-07-17 04:10

  • The problem with the conduit trust is that if the beneficiary lives to life expectancy, nothing will remain in the trust.  All of the IRA benefits will be thrown into the child’s estate, and exposed to the child’s creditors and spouses.
  • If your child is less than a year old, I’m guessing that your IRA isn’t that large yet, so it may be acceptable (to you) to leave the IRA to the child outright (subject to a custodian under the Uniform Transfers to Minors act), or in a conduit trust.
  • If the IRA is large enough to warrant administering a trust, you could include your nieces and nephews as contingent beneficiaries if your child dies without leaving any issue and without exercising his/her power of appointment.


Submitted by Amar Patel on Sun, 2016-07-17 18:12

The attorney did mention the downside of a conduit trust was less creditor protection, etc. within a conduit structure.  But he still recommended a conduit structure (for the retirement assets only) as a balance of all pros and cons and our main goal (versus creditor protection, ex-spouses, etc.) of keeping the child from blowing through hundreds of thousands of dollars before his 21st birthday, for example.  Presumably, once he’s around 30 years old, he would be mature enough to handle the finances and stretches himself and the oversight of a trustee would no longer be needed.  Regarding the naming of nieces and nephews, my wife and I had our first child relatively-late in life, such that my newborn child has a cousin that is now 18.  Naming our nieces and nephews as contingents thus seems like a bad idea, because it would shorten the stretch by 18 years.  And our attorney does not recommend not naming any contingent beneficiaries.  Having to settle for a conduit structure seems like the only alternative my attorney is recommending until if/when my wife and I have a second child (presumably within 1-2 years).



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