Spendthrift Concerns and RMDs
Client has spendthrift concerns for her 2 sons in regards to her qualified money when she passes. If she is has the money in an annuity and is over her RBD date is there any reason why she cant have the annuity upon her death trigger to become an immediated annuity on each of the sons own life with a period certain guarantee that is shorter than the life expectancy of each.
My concern is not whether or not the annuity company will do this but rather if there are any tax law ramifications.
Thanks
Nick
Permalink Submitted by Alan Spross on Fri, 2011-08-19 16:45
Nick,
The IRS should not have a problem as long as they receive the reported taxable income at at rate that is not less than their life expectancy RMD tables. A long period certain might not meet requirements due to reduction of the annual payment. As for the annuitization condition on the beneficiaries, if the insuror cannot offer such a restriction, the IRA owner would have to have qualified trust receive the funds and the trust could include whatever restrictions are desired.
Also, see the att’d article about conduit trusts:
http://findarticles.com/p/articles/mi_m0ICC/is_2_72/ai_107755418/
Permalink Submitted by Bruce Steiner on Fri, 2011-08-19 22:15
But if you’re concerned about a spendthrift problem, a conduit trust is only somewhat better than an annuity. A trust in which the trustees have complete discretion provides better protection. See my article on this in the March 2004 issue of the Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf.