Life and Death Planning for Retirement Benefits

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Chapter 6: Leaving Retirement Benefits in Trust 289
have to be cashed out shortly after the participant’s death to pay estate taxes or for other
reasons, there is no point in making the trust qualify as a see-through.
 Trust beneficiary older than participant (plans that permit stretch payouts). If the
participant dies after his RBD, leaving benefits to a see-through trust, the ADP is the life
expectancy of the participant or of the oldest trust beneficiary, whichever is longer. If the
trust is not a see-through, the ADP is the participant’s life expectancy. If the participant is
past his RBD, and the oldest trust beneficiary is the same age as (or older than) the
participant, the ADP will be the same whether or not the trust qualifies as a see-through.
Thus, qualifying as a see-through trust is IRRELEVANT if (1) the participant was past his
RBD when he died and (2) the oldest trust beneficiary is either close in age to or older than
the participant. However, if the plan in question pays death benefits only in the form of a
lump sum (se , a trust-named-as-beneficiary will have to qualify as a see-through
trust even if the participant died after his RBD and was younger than (or the same age as)
the oldest trust beneficiary, IF the trust wants to stretch distributions over the participant’s
remaining life expectancy. The trust will be able to use that “short stretch” payout only if
it can have the lump sum transferred out of the lump-sum-only plan by direct rollover to
an inherited IRA (see ; and the nonspouse beneficiary rollover option is available
only to individual beneficiaries and see-through trusts. Se C).
 Charitable trust. Passing the trust rules is irrelevant for an income tax-exempt charitable
remainder trust; see
 Lump sum is best form of distribution. There is no need to comply with the RMD trust
rules if the trust qualifies for and plans to take advantage of a lump sum distribution income
tax deal such as that available for “net unrealized appreciation” (NUA) of employer stock
or for a participant born before 1936. See
6.2.02 RMD trust rules: Ground rules
Here are introductory points regarding how to deal with the “minimum distribution trust
rules.”
A. Should you discuss RMDs in the trust instrument? The RMD trust rules do NOT require
the trust instrument to specify that the trustee must withdraw the annual RMD from the
retirement plan. requires the RMD to be distributed from the plan or IRA
to the trust-named-as-beneficiary whether or not the trust instrument mentions the subject.
Nevertheless, practitioners frequently do mention the requirement of withdrawing the
RMD in the trust instrument, because it doesn’t hurt to remind the trustee that he is supposed to
comply with the minimum distribution rules. Also, including language dealing with the minimum
distribution rules makes it clear that the drafter was aware of these rules and that the dispositive
terms of the trust are not meant to conflict with them. In a marital deduction trust it is
common to specify that the trustee must withdraw from the retirement plan “the greater of” the
income (that the spouse is entitled to under the marital deduction rules) and the RMD.
Finally, if it ever becomes necessary to interpret the trust instrument in some unforeseen
fashion, the court will look to the grantor’s intent, so specifying that the grantor intends the trust
to qualify as a see-through should help in that situation.
Avoid tying trust distributions too tightly to the minimum distribution rules, which could
result in the beneficiary’s receiving more or less than the trust-grantor envisioned if the minimum