IRA Trust Forms
Hi…where can I optain Forms for IRA Trusts – Conduit and Accumulation and ancillary documents? I have the Phil Kavesh forms but I am looking for other forms…Thanks, John A. D’onofrio – Attorney at Law
Hi…where can I optain Forms for IRA Trusts – Conduit and Accumulation and ancillary documents? I have the Phil Kavesh forms but I am looking for other forms…Thanks, John A. D’onofrio – Attorney at Law
Permalink Submitted by Bruce Steiner on Fri, 2008-01-11 04:55
The conduit trust rarely if ever makes any sense. It forces assets out of the trust (where they are protected against the beneficiary’s potential creditor, including spouses, and are not included in the beneficiary’s estate for estate tax purposes). Once paid out, the assets become subject to the beneficiary’s potential creditors (including spouses), and will be included in the beneficiary’s estate. If the beneficiary lives to life expectancy, which will happen one-half of the time, nothing will remain protected. If you’re going to do that, in most cases you might as well leave the IRA outright in the first place.
To do a discretionary (accumulation) trust, you have to make sure that none of the IRA benefits payable to the trust can ever go to anyone older than the desired measuring life. See PLR 200228025 for the traps, and PLR 200235038 for how to avoid them. After you look at these rulings, you shouldn’t have any trouble doing the drafting.
There aren’t any ancillary documents.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by John D'Onofrio on Fri, 2008-01-11 05:17
Hi Bruce…thanks…it is amazing how every seminar or article seems to contradict the former…I will take your advice; you seem well versed in this area…thanks again…John
Permalink Submitted by Bill Kanter on Fri, 2008-10-03 06:53
Does anyone have experience using the “IRA Inheritance Trust” based on PLR 200537044 and applied for by Phil Kavesh? As I understand it the trust sets up sub trusts with a “trust protector” who can “toggle” between an accumulation trust and a conduit trust depending on the need of the beneficiary. This would be perfect for a stretch IRA. In my experience, the kids bust an IRA all the time.
Has this type of trust ever been tested in tax court?
Thanks,
Bill
Permalink Submitted by mk foss on Fri, 2008-10-03 17:05
Steve Trytten who is an attorney/CPA in Pasadena thinks conduit trusts are great. He’s done reams of calculations to support this.
We can’t always agree with Bruce no matter how much we love him.
Permalink Submitted by Bruce Steiner on Sat, 2008-10-04 23:32
Mary Kay: thanks for the kind words. Steve Trytten is very knowledgeable. But I still don’t see how a conduit trust makes sense except perhaps in very unusual circumstances. As noted previously, if the beneficiary lives to life expectancy (which will happen 50% of the time), nothing will be left in the trust — all of the IRA benefits will have been distributed to the beneficiary and will be included in the beneficiary’s estate and will be subject to the beneficiary’s potential creditors (including spouses). Why not give the trustees discretion as to how much to take from the IRA (as long as it’s at least the amounts required), and discretion as to whether to distribute some, all or none of the income and principal of the trust to the beneficiary(ies) of the trust?
PLR 200537044 was confusing because it described the transaction as a disclaimer, and because there was a protector who had the power to switch from a conduit trust to a discretionary trust. The action could have been better described as a decanting, and it could have been done by the trustees, without the need for a protector. But since I still think it’s unlikely that a conduit trust will make sense other than in unusual circumstances, I think it makes more sense to create the trust as a discretionary trust in the first instance.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Bill Kanter on Mon, 2008-10-27 07:04
I don’t see how you can maxamize the “stretch” using a discretionary (or accumulation) trust. The issue is the in naming the contingent beneficiary. It seems to me that the youngest life’s (say a grandchild’s) separate trust would need to have a contingent beneficiary and that person will be older that the primary beneficiary and the older life expectancy will be used.
Am I missing something in this analysis?
Thanks,
Bill
Permalink Submitted by mk foss on Mon, 2008-10-27 17:04
When someone is using a trust as an IRA beneficiary and they want to be sure that they get the maximum stretch, they need to provide that no beneficiary older than the income beneficiary will ever receive the benefits. I’ve seen trust agreements with language to do this but Bruce could give more information.
Permalink Submitted by Bill Kanter on Mon, 2008-10-27 17:14
“need to provide that no beneficiary older than the income beneficiary will ever receive the benefits”
Right, my point is that the youngest child or grandchild (if any) has no one younger to name as a contingent beneficiary and in an accumulation trust, there will be accumulation of money that has to go somewhere when that youngest beneficiary dies. Who does it go to and still keep the stretch valid?
Thanks,
Bill