Life and Death Planning for Retirement Benefits

330

Life and Death Planning for Retirement Benefits

Under this model, the trust beneficiary would be given the unlimited right to withdraw the benefits (and any proceeds thereof) from the trust at any time. Until the beneficiary chose to exercise this right, the trustee would exercise ownership rights and responsibilities on the beneficiary’s behalf, for example, by investing the trust funds, choosing distribution options, and distributing income and/or principal to or for the benefit of the beneficiary. This type of trust would be uncommon, since anyone wanting to give such broad rights to the beneficiary would presumably leave the benefits outright to the beneficiary rather than in trust. However, this model could be useful for certain disabled beneficiaries (see ¶ 6.4.04 (C)) or for a “qualified domestic trust” (QDOT) for the benefit of a noncitizen spouse ( § 2056(d) ); see the Special Report: Retirement Benefits and the Marital Deduction, Including Planning for the Noncitizen Spouse ( Appendix C ). If a remainder interest is subject to a power of appointment upon the death of the life beneficiary of the trust, all potential appointees, as well as those who would take in default of exercise of the power, are considered “beneficiaries,” unless they can be disregarded under the rules discussed in this ¶ 6.3 . Under a conduit trust for a single beneficiary, the trust’s remainder beneficiaries are disregarded. ¶ 6.3.05 (B). Thus, the conduit beneficiary (or the trustee or anyone) can be given the power to appoint the trust assets remaining at the conduit beneficiary’s death to anyone, even a charity, a non-see-through trust, an estate, or an older individual, and the trust will still qualify as a see-through with the ADP based on the conduit beneficiary’s life expectancy. See, e.g. , PLR 2006-20026. For a trust with multiple conduit beneficiaries, it is more difficult to apply this rule; see ¶ 6.3.06 . With an accumulation trust, remainder beneficiaries generally must be counted. (The presumed exception is the 100 percent grantor trust; see ¶ 6.3.10 .) Thus, if an accumulation trust (other than, presumably, a 100 percent grantor trust) is to qualify as a see-through, all such potential appointees, as well as those who will take in default of exercise of the power, should be: (1) identifiable ( ¶ 6.2.07 ), (2) individuals ( ¶ 6.2.09 ), who are (3) younger than the beneficiary whose life expectancy is the one the participant wants used as the ADP. The following examples illustrate the possibilities: A. Power to appoint to “issue” of the participant and/or spouse apparently is acceptable, because the power is limited to a small, clearly-defined group of “identifiable” younger individuals. See PLR 1999-03050 (“Trust B”) approving a trust that granted the surviving spouse a testamentary power to appoint the principal “to and among the issue” of the participant and his spouse. If the power were not exercised, the property would pass at the surviving spouse’s death to “the children or their issue, under the terms set forth in Trust M”; thus the potential appointees and the takers in default were the same group. A defect of this ruling is that the “terms” of “Trust M” under which the issue would take are not specified; see “E” below. Presumably the participant had some issue living at the time of his death, though curiously the PLR does not so state. Powers of appointment

B. Power to appoint to spouses of issue. A power to appoint property to someone’s “spouse” is a classic example of creating a nonidentifiable beneficiary (unless it is limited to a