Life and Death Planning for Retirement Benefits

Table of Contents

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6.2.05 Rule 1: Trust must be valid under state law.................................................................... 291 6.2.06 Rule 2: Trust must be irrevocable ................................................................................... 291 6.2.07 Rule 3: Beneficiaries must be identifiable ...................................................................... 292 6.2.08 Rule 4: Documentation requirement ............................................................................... 293 6.2.09 Rule 5: All beneficiaries must be individuals ................................................................. 295 6.2.10 Payments to estate for expenses, taxes ........................................................................... 295 6.2.11 Effect of § 645 election on see-through status................................................................ 296 6.3 RMD R ULES : W HICH T RUST B ENEFICIARIES C OUNT ? .................................................. 297 6.3.01 If benefits are allocated to a particular share of the trust ................................................ 297 A. Beneficiaries with respect to the trust’s interest in the benefits.......................... 297 B. Subtrust named directly as beneficiary of the benefits ....................................... 298 C. Benefits allocated pursuant to trustee’s discretion.............................................. 298 D. Instrument mandates allocation; no formula....................................................... 298 E. Mandated allocation pursuant to formula ........................................................... 299 F. Mandatory allocation under state law ................................................................. 299 6.3.02 Separate accounts: benefits payable to a trust or estate .................................................. 299 A. No separate accounts for ADP purposes............................................................. 299 B. Separate accounts for purposes other than ADP................................................. 300 C. Drafting to achieve separate accounts under one trust instrument ..................... 300 6.3.03 Beneficiaries “removed” by Beneficiary Finalization Date............................................ 301 A. Distribution on or before September 30.............................................................. 301 B. Qualified disclaimer by September 30................................................................ 302 C. Other ways to “remove” a trust beneficiary........................................................ 302 6.3.04 Disregarding “mere potential successors” ...................................................................... 303 6.3.05 Conduit trust for one beneficiary .................................................................................... 303 A. What a conduit trust is ........................................................................................ 303 B. How a conduit trust is treated under the RMD rules .......................................... 304 C. Payments for beneficiary’s benefit ..................................................................... 304 D. Payment of trust expenses................................................................................... 304 E. Drawbacks of the conduit trust ........................................................................... 305 F. Conduit trust drafting pointers ............................................................................ 305 G. Conduit trusts for successive beneficiaries ......................................................... 306 6.3.06 Conduit trust for multiple beneficiaries .......................................................................... 306 6.3.07 Accumulation trusts: Introduction .................................................................................. 307 6.3.08 Accumulation trust: O/R-2-NLP..................................................................................... 308 6.3.09 Accumulation trust: “Circle” trust .................................................................................. 309 6.3.10 Accumulation trust: 100 percent grantor trust ................................................................ 310 6.3.11 Powers of appointment ................................................................................................... 311 6.3.12 Combining two types of qualifying trusts....................................................................... 312 A. Conduit trust and 678 grantor trust ..................................................................... 312 B. Conduit distributions must begin at participant’s death ..................................... 313 C. “Switch” trusts .................................................................................................... 313 6.4 E STATE P LANNING WITH THE RMD T RUST R ULES ......................................................... 313