Sub Trust as Contingent Beneficiary

Submitted by MIKE KRUCHTEN on Fri, 2019-09-06 19:53

Have a client who is married with 2 adult children who are both in their 40’s. Estate planning goal is have spouse primary bene and 2 adult children as Contingent 50/50 and should Stretch IRA still be allowed in some fashion in future years wants his adult children to have the ability to stretch. Their ages are very close so has no issue with a see thru/qualified trust as contingent beneficiary versus the 2 children stand alone.

Here is where I don’t know if their is a method to help….
In the event client, his spouse and one child die together, is their a method to allow the surviving grandkids of the deceased child to use their own DOB for stretch purposes. This question comes up often and don’t know if their is a solution unless clients would create sub trusts within Trust document and correctly specify the sub trust on IRA beneficiary form. I believe IRS PLR 200537044 cleared this up unless their has been subsequent rulings I’m not aware of. However, client only wants grandkids to receive portion of IRA only if adult kids die so the sub trusts may not carry out client’s intent. Another thought is if the adult child was named Contingent and selected per stirpes would the DOB used for stretch then be the grandkids of the deceased adult child or does IRS determine RMD payout like a Estate? The custodian’s IRA claim paperwork has a hold harmless clause so they don’t police Beneficiary IRA account make up or RMD. Myself and the estate planning attorney are somewhat laughing since we both feel IRA stretch in current format is a goner but until it’s official planning must be done under current laws.



Submitted by Alan - IRA critic on Sun, 2019-09-08 16:27

  • Latest rumor is that the Secure Act or some version of it may be attached to the budget bill at the end of Sept. so client may want to wait just a little longer on the trusts.
  • If no trust and children are named per stirpes, children that inherit per stirpes can use their own life expectancy and the separate account rules to separate their inherited IRA from any other such beneficiaries who might be older. In other words, the rules are the same as if they were individually named as beneficiaries by the client. Per stirpes can also be activited by a qualified disclaimer if the named beneficiary is still living when the client passes.

Submitted by MIKE KRUCHTEN on Mon, 2019-09-09 20:15

Thanks for the information when a human is named as bene per stirpes, assumed their DOB’s would be used but never was 100% sure. If a sub trust(for client’s adult child) was named as a contingent beneficiry and that older child passed away before IRA owner. The sub trust language stipulates the deceased child’s children are to receive assets. Would the DOB’s of these children(granchildren of IRA account owner) or DOB of the child whom the sub trust was created for be used for RMB calculations. Thou the grandchildren may be able to stretch as a look thru trust the DOB to be used to me is uncertain. Again, I know this may be all mute soon with pending Stretch IRA legislation but until it does change attempting to best serve the current needs of client

Submitted by Alan - IRA critic on Tue, 2019-09-10 04:02

Since the older child passed prior to the beneficiary determination date (9/30 of the year following the year of owner’s death) the oldest beneficiary of those remaining determines the RMD distribution period. In this case, that would be the eldest grandchild.

Submitted by Bruce Steiner on Wed, 2019-09-11 02:23

  • I’m not sure what you mean by a subtrust, but if you name your spouse as the primary beneficiary and your issue (either outright or in trust) as the contingent beneficiaries, then if your spouse and a child predecease you (or disclaim), then the deceased or disclaiming child’s issue (your grandchildren in that branch) will get that child’s share.
  • It doesn’t matter whether a child or grandchild takes outright or in trust, so long as if the grandchild takes in trust, there aren’t any subsequent beneficiaries at the child level.  In other words, if the grandchild dies without leaving any issue, the balance of his/her trust can’t go to your other child.  But it could go to the trusts for your other child’s issue.
  • It doesn’t matter whether the trusts are created in your Will or in a separate trust instrument.  It’s usually easier to put the trusts in the Will, but it’s a matter of style (and legal fees if the lawyer charges by the document) rather than substance.
  • This should be a routine matter for a competent trusts and estates lawyer.
  • You should plan based upon current law.  There’s no way to know what Congress may do.
  • For more information on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  https://www.kkwc.com/wp-content/uploads/2015/04/AR20041209132954.pdf.
  • Bruce Steiner

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