So your wife will do the spousal rollover with her share, the name the trust or another trust as her beneficiary with the same conditions and the 10 year rule on this portion will start upon her death? You need a top notch trust attorney and trustee for the trust to carry out this plan. Perhaps Bruce Steiner, a trust attorney who posts here will have comments.
This is a more complex version of a basic strategy of leaving naming the children as beneficiaries on both spouse’s IRAs, so the children inherit at different times so the 10 year rule will not overlap much, providing up to 20 years of stretch, but with contingencies the children must meet and providing a share for the surviving spouse in the meantime.
It would help to know the ages of the orginal poster and his wife and children, and whether the children are likely to have taxable estates. (Obviously there’s no way to know what the estate tax exclusion amount will be at the children’s deaths, but the original poster should make his best guess.)
Another possibility might be to leave the IRA to charitable remainder trusts for the children at the surviving spouse’s death so as to replicate the stretch.
Wife age 67, kids age 41, the kids will not have taxable estate, no grandchildren. CRT tends to leave too much to charity. With my idea, kids have strong possiblity of getting my IRA tax deferred for 30 years. The distributions out of my IRA are taxable to them over 10 years. However, if they max out 401k and IRA ($25,500), these deductions offset most of the tax on the distributions they receive. Result – my IRA goes into their 401k / IRA tax deferred until they start taking RMDs 30 years from now. Plus their 401k / IRA accounts are creditor protected. If they simply took distributions over 10 years, distributions are taxable during their prime earning years and no creditor protection.
At 41, your children are good candidates for charitable remainder trusts. The value of their streams of payments will be 90% of the value of your IRAs as of the surviving spouse’s death and the value of the charities’ remainder interests will be 10% of the value of your IRAs as of the surviving spouse’s death.
The benefit of being able to spread the distributions over your children’s lifetimes will probably outweigh the loss of the remainer to charity at their deaths.
See my article on this in the April 2020 issue of Trusts & Estates: https://www.kkwc.com/wp-content/uploads/2020/06/Charitable_remainder_trusts_replicate_the_stretch_-_Trusts__Estates_4_2020.pdf.
Permalink Submitted by NICHOLAS PUGLISI on Fri, 2021-05-07 00:43
I plan to leave 50% of my taxable IRA to my 2 adult children via accumulation trust and 50% to my wife. Kid’s portion will be distributed 10% annually to accumulation trust. Annual amount will approximate $35,000 per kid. Trustee will be instructed tp distribute the entire annual amount to each child if the child contributes the maximum amount that year to their 401(k) and IRA ($19,500 +$6,000). If child does not contribute maximum amount, amount will be retained in trust until they retire, albeit at high tax rates, but creditor protected. Kids seem interested in maxing out 401k / IRA. Assuming wife dies 10 years after me, process will be replicated. Kids will end up with my IRA in their creditor protected retirement accounts and can take distributions over their lifetimes. Comments?