Life and Death Planning for Retirement Benefits

306 / 507

306 Life and Death Planning for Retirement Benefits
benefits to a stand-alone conduit trust might consider using an “individual retirement trust”
(IRT) instead. ¶ 6.1.07.
G. Conduit trusts for successive beneficiaries. Here is a question that comes up repeatedly
regarding conduit trusts:
Question: If there is a conduit trust for one beneficiary (call him Child), and after that beneficiary’s
death the trust converts to being a conduit trust for another beneficiary (call her Grandchild), does
the ADP switch to the life expectancy of the beneficiary of the second trust (Grandchild in this
example) when the first conduit beneficiary dies? Or if there is a conduit trust for the benefit of
the participant’s spouse (“Spouse”), which passes to the children at her death, does the trust switch
to using the children’s life expectancy as the ADP after Spouse dies?
Answer: No. The ADP is always and irrevocably established at the participant’s death based on
the life expectancy of the participant’s Designated Beneficiary (or applicable “no-DB rule”). See
For a rarely-applicable exception to this rule, see C). By leaving benefits to a
conduit trust of which Child (or Spouse) is the conduit beneficiary, the result you get is that the
ADP for benefits payable to the trust is the single life expectancy of Child (or Spouse). But that’s
ALL you get: Just because you use a conduit trust does NOT mean that the ADP somehow switches
or flips upon the Child’s (or Spouse’s) later death and allows the trust to stretch subsequent
distributions over the next beneficiary’s life expectancy.
6.3.06 Conduit trust for multiple beneficiaries
Though the IRS’s only example on point deals with a conduit trust for just one beneficiary,
the principle should also work with multiple beneficiaries. However, even more is required to draft
a conduit trust for multiple beneficiaries. To have a conduit trust for multiple beneficiaries, the
requirements would be (based on the language in the IRS regulation):
1. All distributions the trust receives from the retirement plan must be immediately paid out
to one or more of the conduit beneficiaries; and
2. As long as any member of the conduit group is living, no plan distributions can be
accumulated in the trust for possible distribution to other beneficiaries.
Warren Example: Warren dies leaving his IRA to a trust for his children. The trust provides that,
as long as any child of Warren is living, the trustee must pay out, to one or more of such children,
in such proportions as the trustee deems advisable for their education, support, and welfare, any
and all amounts the trustee receives from the IRA, upon receipt. The trust terminates when there
is no child of Warren living who is under the age of 40, and the IRA is to be transferred in equal
shares at that time to such of Warren’s children as are then living. Warren’s trust “works” as a
conduit trust, since only the children can receive benefits from the IRA as long as any child is
living. However, this approach does not provide any benefits for the issue of a deceased child of
Warren.
Davis Example: Davis’s trust is the same as Warren’s, except that Davis’s trust provides that,
upon the death of any child of Davis during the term of the trust, such child’s share would be held
in trust for later distribution to the deceased child’s issue. Davis’s trust would not qualify as conduit
trust, because plan distributions may be accumulated in the trust while some members of the