Life and Death Planning for Retirement Benefits

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310 Life and Death Planning for Retirement Benefits
estate taxes for his issue, and who would just as soon leave it outright to the spouse if it should
happen that all the issue predecease the spouse.
This is also called the “last man standing” approach, because it provides for an accelerated
termination if it should ever occur that only one member of the beneficiary-group is still living,
with immediate outright distribution of the entire trust to that individual; see B).
Note: Of course there is the possibility that simultaneous deaths may occur with the result
that the benefits wind up passing to one or more beneficiaries’ estates (i.e., nonindividual
beneficiaries). Based on Reg. A-7(c)(3), Example 1, and the successful O/R-2-
NLP PLRs A)), this possibility is ignored when testing a trust for see-through status.
6.3.10 Accumulation trust: 100 percent grantor trust
Under the so-called “grantor trust rules,” a trust beneficiary who is a U.S. citizen or resident
is treated for purposes of the federal income tax as the “owner” of trust assets if such beneficiary
has the sole unrestricted right to withdraw those assets from the trust. See
Reg. If an individual is deemed the owner of all of the trust’s assets under
then retirement benefits payable to such trust should be deemed paid “to” such individual
beneficiary for purposes of the minimum distribution rules, and the “all beneficiaries must be
individuals” test would be met; however, there is no ruling on point.
In PLR 2000-23030, the decedent’s IRAs were payable to a trust that was a grantor trust
as to the surviving spouse. The IRS ruled that a transfer of the decedent’s IRAs to or from this
trust was deemed a transfer to or from the surviving spouse. See also PLR 2003-23012, in which
the surviving spouse was recognized as the participant’s Designated Beneficiary under the annuity
rules o when benefits were payable to a trust deemed owned by the spouse under the grantor
trust rules. However, neither of these rulings discussed whether the trust in question qualified as a
see-through trust. The IRS has always been more lenient in allowing a spousal rollover through a
trust (see than in recognizing a trust as a see-through.
In PLRs 2006-20025 and 2008-26008 (discussed at C)), the IRS allowed
beneficiaries who inherited IRAs outright to transfer their inherited IRAs to “grantor trusts” for
their own benefit, again lending support to the conclusion that a grantor trust will be deemed “the
same as” the individual who is treated as the 100 percent owner of the trust property for income
tax purposes. But there is no specific ruling to the effect that a trust that is named as beneficiary
of a retirement plan and that is a grantor trust as to a particular individual qualifies as a see-through
trust.
Treating the trust beneficiary as the “owner” of the benefits for income tax purposes would
have two significant results: Income taxes on the trust’s income would be imposed at the
beneficiary’s rate; and (presumably) the remainder beneficiary would not be considered a
beneficiary of the trust for purposes of the minimum distribution rules. Thus an estate, older
individuals, or charities could be named as remainder beneficiaries (to succeed to whatever part of
the trust was not distributed to or withdrawn by the owner-beneficiary during his life) without loss
of the use of the owner-beneficiary’s life expectancy as the ADP. Similarly, a power of
appointment that affected the trust property only after the death of the owner-beneficiary could be
disregarded; see