Life and Death Planning for Retirement Benefits

Chapter 6: Leaving Retirement Benefits in Trust

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because the trustee is required to transmit to Beakie only RMDs, not ALL distribution the trustee receives from Florence’s IRA. Answer NO to Question 5. Rhett Example: Rhett’s trust says “Following my death, the trustee shall pay $10,000 to Charity X, no later than September 30 of the year after the year of my death; and the trustee shall withdraw the annual required minimum distribution RMD) from my IRA each year, and such additional amounts as the trustee deems advisable, and shall promptly transmit such RMDs and additional amounts (if any) to my son Bip.” Ignore Charity X and Answer YES to Question 5. 6. We have established that there is a “conduit trust” for the benefit of more than one individual. Of the group of individual “conduit” beneficiaries, is it possible to identify, at the time of the participant’s death, which member of the group has the shortest life expectancy? See ¶ 6.2.07 . 7. We have established that the trust is not a “conduit” trust with respect to an individual beneficiary (or group of individuals), so the trust is an “accumulation” trust. We next test whether the trust qualifies as a see-through under one of the qualification methods available to accumulation trusts. Does one individual trust beneficiary have the absolute right to withdraw all assets from the trust at any time? Yes: The trust qualifies as a grantor trust with respect to the individual beneficiary. See ¶ 6.3.10 regarding whether it qualifies as a see-through trust. No: Go to Question 8. 8. Must the trust terminate immediately, and be distributed outright to one of the individual trust beneficiaries, if all other individuals who are beneficiaries of the trust die while there is still money in the trust? Yes: This trust qualifies as a see-through trust because it is a “circle” or “last man standing” trust. See ¶ 6.3.09 , ¶ 6.4.05 (B). No: Go to Question 9. 9. We have determined that the trust does not qualify as a see-through trust either as a conduit, 100 percent grantor, or circle (last man standing) trust. The final step is to test the trust beneficiaries to see whether the trust qualifies as an “O/R-2-NLP” trust, and if so who the oldest (countable) beneficiary is. See ¶ 6.3.08 . To answer Question 9, make a list of all beneficiaries of the trust who are or may be entitled to the benefits, in the order in which they are entitled. Go all the way down the chain of beneficiaries and potential future beneficiaries and contingent and even wipeout beneficiaries as far as you can go, UNTIL you come to a beneficiary who (or which) is entitled to immediate outright distribution of the benefits upon the death of a prior beneficiary. That “unlimited” beneficiary (to use the IRS’s term) is the last beneficiary you have to “count.” Yes: Go to Answer D. No: Go to Answer A.