IRAS AND TRUSTS

David B. McKinney

IRAs

SCOPE.ALL IRAS EXCEPT ROTHS.

MANY QUALIFIED DC PLANS.

IRAs

PLAN TERMS CAN REDUCE YOUR OPTIONS.DC PLANS – REAL CONCERN.

“BIG BOX” PROVIDERS.

IRA TAX BASICS

INCOME – ALWAYS TAXED WHEN DISTRIBUTED.

TAXED WHEN ASSIGNED.DON’T ASSIGN OWNERSHIP TO A TRUST OR FLP!

IRA TAX BASICS

ESTATE TAX:NO STEPUP.WITHDRAW: TWO TAXES!

SELL STEPPED-UP ASSETS TO PAY.

IRA TAX BASICS

HORROR STORY:$1,000,000 IRA. AT DEATH:( 400,000) ESTATE TAX @40%

( 240,000) INCOME TAX @40%

$ 360,000 NET TO FAMILY

IRA TAX BASICS

OKLAHOMA MAY EXEMPT SOME DISTRIBUTIONS FROM STATE INCOME TAX.

IRA TAX PLANNING

BEST SOURCE OF AFTER-DEATH CHARITABLE BEQUESTS:NO ESTATE OR INCOME TAX.

IRA TAX PLANNING

INSTALLMENTS: DEFER INCOME TAX.RMDS.

IRA TAX PLANNING

“LIFE EXPECTANCY”:65: ABOUT 88.MARRIED, BOTH 65: ABOUT 92.

AGE 90 RULE.

IRA TAX PLANNING

PLANNING FOR DEATH:Pay: 1 Yr., or 5 Yrs. or RMD.

OLDEST RMD FOR ALL. ▪SEPARATE ACCOUNTS.

NO RECALCULATION.

IRA TAX PLANNING

BENEFICIARY CAN ELECT:INSTALLMENTS.

▪NOT IN 401(k)/DC? BUT ROLLOVER …

IMMEDIATE PAYMENT.

IRA TAX PLANNING

BENEFICIARY CAN INVEST.

MULTIPLE BENEFICIARIES.

TRUST AS BENEFICIARY

WHY WOULD YOU DO IT?

IRA TAX PLANNING

VALID, IRREVOCABLE, TRUST.HUMAN BEINGS AS BENEFICIARIES.

IDENTIFIABLE UNDER ALL POSSIBLE SCENARIOS.

THE ADMINISTRATOR HAS A COPY OF THE TRUST OR LIST OF ALL BENEFICIARIES & CONDITIONS TO ENTITLEMENT.

(a)The trust must be a valid trust under state law;(a)The trust must be irrevocable or become irrevocable upon the IRA owner’s death;(b)The trust must have identifiable beneficiaries who are to receive the interest in the IRA; and(c)The trust document (or a certified list of all beneficiaries, including contingent and remainder beneficiaries, and a description of conditions on their entitlement to the interest in the IRA) must be provided to the plan administrator.

IRA CLAUSE FOR TRUSTS

HANDOUT.TRUSTEE CAN ALLOCATE TO CHARITIES OR HUMANS.

PLR RIGHTS.“RESIGN.”EDUCATION.

IRA TAX PLANNING

1099 GOES TO THE TRUSTEE??CHARITIES!POWERS OF APPOINTMENT

DISQUALIFY.REQUIREMENTS FOR SPOUSES?LOCATION OF PROOF – NOTICE

TO ADMINISTRATOR?“BIG BOX” PROVIDERS?

PROBLEMS IN TRUSTS

INSOLVENT TRUST OR BENEFICIARIES.

SHORT-TERM TRUST WITH INSTALLMENTS.

TRUSTEE SOPHISTICATION. INVESTMENT AUTHORITY.OLDEST RMD FOR ALL.FAMILY DISPUTES.

SOLUTIONS:

PLR 201241017: SEPARATE THE IRA INTO ACCOUNTS.

TRUSTEE-TO-TRUSTEE IRA TRANSFERS

EACH IRA IS “INHERITED.” RMD: OLDEST BENEFICIARY.

SEGREGATED TRUST

[DISCUSSION]

SOLUTIONS:

CAN THE TRUSTEE DISCLAIM AND PASS TO INDIVIDUALS?NEED CONSENTS.ATTRIBUTED TO THE BENEFICIARY?

REVIEW THE IRA’S DEFAULT BENEFICIARIES.

SOLUTIONS:

DISTRIBUTE IMMEDIATELY AND PAY THE TAXES.THE DEFERRAL IS NOT WORTH MUCH!

LOCK-IN IRAS

CONCEPT.NEED: FLEXIBLE TRUSTEE.LOCAL TRUSTEES …

LOCK-IN IRAS - REASONS

BLENDED FAMILY.SPENDTHRIFT.AGE GAP.UNSOPHISTICATED TRUSTEE.

LOCK-IN IRAS

INVESTMENT DIRECTION.

CREDITORS – DECEDENT OR BENEFICIARIES.

SHAKY MARRIAGES – BENEFICIARIES.

LOCK-IN IRAS

TRUSTS WITH CHARITIES OR POAs.

MEDICAID.

LOCK-IN IRAS

FLEXIBILITY: YOU CAN DO ANYTHING THAT YOU COULD DO WITH A TRUST.

LOCK-IN IRAs

DISCLAIMERS.QTIP.BYPASS, CREDIT SHELTER, GST TERMS.

LOCK-IN IRAs

EXTRA DISTRIBUTIONS.HEMS OR OTHER STANDARDS.

LOCK-IN IRAS

YOU ALSO CAN:SEPARATE ACCOUNTS & RMDS.

SEPARATE INVESTMENTS.PRE-SET THE INSTALLMENT METHOD.

LOCK-IN IRAS

CURRENT PROJECT: LOCKED-IN IRA WITH MEDICAID SUPPLEMENTAL BENEFIT TRUST TERMS.

LOCK-IN IRAS

AVOID A GENERATION OF INCOME/ESTATE TAXES.

PREVENT SECOND SPOUSE ROLLOVER.

LOCK-IN IRAS

AVOID DISTRIBUTION TO THE DECEDENT’S CREDITORS.