Can Rev Liv Trust act as conduit trust?
I have 78 year old widowed client with one son who is disabled. One grandson also disabled and 5 year old great grandson. He has Revocable Living Trust to house $3.5 million for son and grandson. He has $400K IRA to leave to great grandson [who has legal guardians]. Client wants to leave IRA to great grandson as a stretch, paying out RMD’s yearly – [with probate court supervision until 18]. Can he use the same revocable living trust, which has the 4 required IRS features, as a conduit trust for the great grandson AND use the great grandson’s age and not the his father’s or grandfather’s age when great grandpa dies? A separate conduit trust would be neater, but is it required to get the great grandson’s age used in the stretch?
Permalink Submitted by Alan Spross on Mon, 2007-11-12 21:30
Yes, the separate account rules do not apply to trust beneficiaries. The age of the oldest beneficiary determines the RMD for all beneficiaries.
Separate trusts are probably in order here, not just due to the generation differences, but a special needs trust (SNT) may also be in order for some of them depending on circumstances so that govt benefits are not lost. A SNT would not be a conduit trust either based on the inherent situation that justifies an SNT.
Permalink Submitted by Al Fry on Tue, 2007-11-13 01:47
As Alan said, one would not want a SNT to be a conduit trust (paying RMDs out to the bene), however it could be a see-through trust so the stretch is available.
Permalink Submitted by Bruce Steiner on Tue, 2007-11-13 04:27
It doesn’t matter whether the trust that receives the IRA benefits is in the Will or in a separate trust instrument. It’s simply a matter of style.
Guardianships for minors can be very cumbersome. You could provide for payments to the minor to go to a custodian under a uniform transfers to minors act.
I’ve never had a case where a conduit trust made any sense. I don’t know why they’ve gotten so much attention. But the one advantage that they have is that you can ignore successor beneficiaries in determining the oldest beneficiary of the trust. It wasn’t clear from the facts whether the son and grandson with disabilities were the only child and grandchild, and whether this great-grandson is the only great-grandchild. If so, and since the IRA is only about 10% of the total estate, this might be an exception to the general rule, and it might make sense to use a conduit trust, though if you’re going to use a conduit trust you might as well simply leave the IRA to the great-grandson outright (with a custodian until age 21) and not bother with the trust for the IRA benefits.
Is there any need for a revocable trust here? They do not save (or cost) any taxes. While revocable trusts are useful in some cases, in most cases they aren’t really necesary, and they often serve as a distraction from the more important issues.
The more important issue here is protecting the non-IRA assets by leaving them in trust for the son and grandchild with sufficiently flexible terms and with the appropriate trustees.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL