2 generations of special needs trusts
Hello.
Client has a special needs trust for daughter and a separate special needs trust for client’s grandson (client’s daughter’s son). The remainder beneficiary of the daughter’s special needs trust is her son’s special needs trust. Client has more than $1million in pensions/401k assets. Ideally, client would like the daughter’s special needs trust to be the contingent beneficiary of his qualified assets for daughter’s life and then grandson’s special needs trust to be owner upon daughter’s death.
Can this work? What are the tax implications? Would grandson’s trustee be able to continue to stretch the IRA distributions or would they be forced to distribute all assets from the trust immediately? If grandson’s trust is capable of stretching the benefits would the trustee be required to take distributions over the life expectancy of the deceased mother or grandson?
Thank you much for your help in advance.
Permalink Submitted by mk foss on Tue, 2012-09-04 16:37
Have you checked the provisions of the Qualified Retirment Plan? Often they don not provided for a stream of payments to the beneficiary of an employee. If a trust is the beneficiary, the trustee will need to do a nonspousal rollover to an inherited IRA on a timely basis. It may be easier to have the plan participant roll benefits to an IRA suring his/her lifetime to expedite the plan.
If the daughter’s trust is the primary beneficiary and it qualifies as a designated beneficiary it uses the daughter’s life expectancy from the IRS single life table for RMDs. When the daughter passes away, the trust is still the IRA beneficiary and payments continue at the same schedule to the trust. At that point the trust agreement takes over and distributes income to the next trust beneficiary. It might be possible for the IRA to be assigned to the beneficiary of the daughter’s trust if that trust is terminating.
Any contingent beneficiary named by the original participant is disregarded if the primary beneficiary takes the benefits at the participant’s death.