Life and Death Planning for Retirement Benefits

Chapter 7: Charitable Giving

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which a disclaimer was held not to be qualified under § 2518 for this reason (the disclaimed asset passed to a charitable lead trust ( ¶ 7.5.09 ) of which the disclaimant was a remainder beneficiary). Donna Example: Donna, named as primary beneficiary of her late brother’s IRA, disclaims the IRA. As a result of her disclaimer, the IRA passes to the contingent beneficiary, a charitable remainder trust (CRT; ¶ 7.5.04 ) of which Donna is the life beneficiary. Because of her life interest in the CRT, the IRA is not passing to “someone other than the disclaimant.” Since Donna is not the spouse of the IRA owner, her disclaimer is therefore not a qualified disclaimer (unless she first disclaims all interests in the CRT). Although her nonqualified disclaimer is treated as a gift for gift tax purposes, there are no adverse gift tax consequences, because the “donee” is a CRT of which the only beneficiaries are herself and a charity. Gifts to yourself or to charity are not subject to gift tax. However, her nonqualified disclaimer is not within the safe harbor of GCM 39858 for income tax purposes. If the disclaimer is treated as an assignment of the right to receive income in respect of a decedent, Donna would be liable for income taxes on the full value of the IRA, and the IRA would lose its qualification. § 691(a)(2) ; see ¶ 2.1.04 (B) and ¶ 4.6.03 .

7.3 RMDs and Charitable Gifts Under Trusts

This ¶ 7.3 explains how the minimum distribution rules work with respect to a trust that is named as beneficiary of a retirement plan, when one or more charities are beneficiaries of the trust. For explanation of the minimum distribution rules generally, see Chapter 1 . For details regarding the minimum distribution rules as they apply to trusts, see ¶ 6.2 – ¶ 6.3 .

Trust with charitable and human beneficiaries

Suppose a client wants to name a trust as beneficiary of his retirement plan. His children are intended to be the primary beneficiaries of the trust, but the trust also has one or more charitable beneficiaries. He wants the plan benefits that pass to this trust to be paid out in installments over the life expectancy of his oldest child. To achieve the desired result, the “RMD trust rules” must be complied with, so that the trust qualifies as a “see-through trust” for minimum distribution purposes. One of these rules is that all trust beneficiaries must be individuals. § 401(a)(9)(E) ; Reg. § 1.401(a)(9)-4 , A-1, A-2. This rule creates two problems in common estate planning situations involving charities:  First, any charitable gift to be paid from the trust at the participant’s death, no matter how small, would cause the trust to flunk this requirement. The only possible exception to this rule would be if the trustee is forbidden to use the retirement benefits to fund the charitable bequest. Even the normally innocuous statement “this trust shall pay any bequests under my will, if my estate is not adequate to pay the same,” could make the trust “flunk” if the will contains charitable bequests. However, the problem of such payable-at-death charitable gifts can be cured by distributing the charitable bequests prior to the Beneficiary Finalization Date. See ¶ 7.3.02 .