SEE-THROUGH TRUST PROVISIONS

Submitted by Allan S on Fri, 2017-04-14 13:12

My wife and I have separate Living Trusts that pass the trust assets to the surviving spouse and then to our children and their descendants. My IRA (from a 401(k) rollover) names my wife as primary beneficiary and then the Living Trust. Upon review by a Fidelity retirement counsel, it was suggested that I specifically include the See-Through Trust provisions to my Living Trust to ensure that the IRA trust assets could be spread out for more than 5 years to my children as set forth in the Living Trust. I then went about preparing a See-Through Trust Amendment including the required 4 provisions: 1) trust valid under state law, 2) trust is irrevocable upon my death, 3) beneficiaries are identifiable, and 4) a copy of the trust documents will be provided to the IRA custodian. All seemed rather straightforward.
However, our Living Trust has a separate Article entitled “Contingent Gift Provision” which provides for the distribution of trust assets to CHARITY in the unlikely event that all family members have died and assets remain in the trust. Naming a charity made great sense as I am a supporter of this charity and also would not want the trust assets to be distributed beyond our immediate family or have the remaining trust assets escheated to the state.
My questions: 1) To spread the distribution of the IRA trust assets beyond 5 years under the See-Through Amendment, must I remove the CHARITY from the Contingent Gift Provision? 2) If I need to remove the Charity to spread the distribution beyond 5 years, do you have any suggestions to restructure our retirement plans (beyond outright charitable gifts) so that this contingent gift to charity is not frustrated?
Thank you for your thoughts. It is very much appreciated.
ARS



Submitted by Bruce Steiner on Sun, 2017-04-16 01:20

  • It doesn’t matter whether you say the trust is valid under state law.  It matters whether the trust is in fact valid under state law.  (This is an easy one — it would be hard to have a trust that wasn’t valid under state law.)
  • Even if the trust is revocable after your death, if after your death you revoke it, we won’t know about it.
  • The beneficiaries being identifiable is more complicated than it sounds.  The key is to make sure that nothing can ever go to anyone older than the person whose life expectancy you want to use to measure the required distributions, or to anyone other than an individual or another trust subject to the same restrictions.
  • It doesn’t matter whether you say a copy of the trust has to be given to the custodian.  It matters whether a copy is in fact given to the custodian.
  • You’ll have to decide which is more important:  the stretch or the charity as a contingent remainder beneficiary.
  • This isn’t a do it yourself project.  See my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  http://www.pekdadvocacy.com/documents/estateplanning/Trusts_as_Beneficiaries_of_Retirement_Benefits.pdf .
  • Why do you want to run the IRA through a living trust?  It’s an unnecessary step, and can create complications.

 

Submitted by Herm Brames on Wed, 2017-05-03 15:34

So let’s say in the example cited here, the charity is removed, the trust benificiaries are clearly identifiable, the trust is valid under state law, the trust is irrevocable after death and both parents have passed.  Let’s say further that Vanguard is trustee for the individual trusts and the estate personal representative typically has no authority or responsibility to follow thru on trustee or asset custodian notification of death where assets have beneficiary designations and neither is the attorney handling other estate issues typically involved in assets with beneficiary designations.  How can it be guaranteed that trust documents are provided the IRA custodians by the required deadline thus providing the stretch opportunity for the individual trusts?

Submitted by Alan - IRA critic on Wed, 2017-05-03 18:55

The trustee of the trust is responsible for providing trust documentation to the IRA custodian by the deadline. Of course, someone must notify the trustee of the death of the IRA owner so the trustee can submit a death certificate along with other trust documentation including trust EIN by the 10/31 cutoff date. If Vanguard is both the IRA custodian and trustee of the trust, coordination should be easier.

Submitted by Bruce Steiner on Wed, 2017-05-03 22:31

  • While the attorney represents the executors, the attorney has to get involved in the nonprobate assets in order to report them on the estate tax return.  While it’s up to the beneficiaries as to how to deal with any nonprobate assets, the attorney will usually deal with them on behalf of the beneficiaries.
  • In your example, if Vanguard is both the trustee of the trusts that are the beneficiaries and the custodian of the IRA, it should be easy for Vanguard to send themselves a copy of the Will or trust agreement.

Submitted by Herm Brames on Tue, 2017-05-09 18:05

As Alan and Bruce both indicate, notification of death and trust document provision to the asset custodian is the issue since the owner of the assets and creator of the trust would be deceased.  With the beneficiary of a ROTH IRA plus other non-retirement assets anticipating a million dollar condo in Florida and a small plane to fly him and friends there on long dismal northern winter weekends, access to the total inheritance after the Oct. 31 cutoff may be highly desirable rather than have those funds dribble out thru a trust.  So, while the estate attorney may deal with the probate and non-probate assets in the filing of an estate tax return, that attorney can be directed by the beneficiary to not provide the trust documents to the asset custodians, right?  BINGO!  Beneficiary waits until Oct. 31st deadline and hits the LOTTERY.  Back to my original post, how can the owner of a ROTH (or other) IRA guarantee after death that their trust requirements for stretching distributions will be followed?    For instance, could the “Will” include an enforceable requirment that the estate attorney provide appropriate death certificates and trust documents to asset custodians within a required timetable?   How would such a requirement be enforced, by whom and with what penalty?  Looking for a sure answer, maybe none exists.

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