Life and Death Planning for Retirement Benefits

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Chapter 6: Leaving Retirement Benefits in Trust 333
4. Does the trust provide that retirement benefits payable to the trust may not be used to pay
debts, expenses, or taxes of the participant’s estate, or otherwise be paid to the participant’s
estate, after September 30 of the year after the year of the participant’s death (or at all)?
See
Yes: Go to PART II of the Quiz.
No: If the participant is living, amend the trust to include such a provision. If the participant is
deceased, “fix” the trust using a cleanup strategy as described in Then proceed to PART
II.
PART II: BENEFICIARIES AND SUBSTANTIVE TERMS
Having dealt with the preliminaries, we now turn to testing the beneficiaries of the trust. In
applying this quiz, remember that:
 The time to apply these questions is at the moment of the participant’s death. If the
participant is still alive, pretend that he dies right now; what would happen to the benefits
that would flow into this trust if the participant died right now?
 Ignore any beneficiary who dies before the participant, even if he/she is named in the trust.
See Example 3, below.
 The quiz may not work properly in case of “double deaths,” i.e., where a trust beneficiary
survived the participant, but then died prior to complete distribution of his/her trust share.
In such cases, see
 If the retirement benefits are payable directly to a particular separate trust, share, or subtrust
created under the trust instrument as named beneficiary under the participant’s beneficiary
designation form, apply these questions ONLY to that particular separate trust, share or
subtrust. See B). Otherwise, see the rest of regarding whether to apply
these questions to the entire trust.
Example 1: Janice’s IRA is payable to “the trust created for the benefit of my son Timmy under
Article xxi of the Janice Trust.” Apply these questions to the separate trust that is to be created for
the benefit of Timmy, ignoring the other trusts (if any) created under the Janice Trust. (Of course,
if upon Timmy’s later death or some other event the assets in his separate trust will flow out to
other shares created under Janice’s trust, you may end up having to test all the shares anyway.)
Example 2: Godfrey’s IRA is payable to the Godfrey Trust. On Godfrey’s death, the trust divides
into a marital trust and a credit shelter trust. You need to test BOTH subtrusts, since the IRA is
payable to the single “funding” trust. If (under the terms of the Godfrey Trust, or applicable state
law, or as a result of applying a formula or the trustee’s discretion), the IRA ends up being allocated
to only one or the other of the two subtrusts, see regarding whether you can “ignore”
beneficiaries of the other subtrust or share.
Example 3: Doris leaves her IRA to a trust that says “Pay income to my husband Corey for life,
and on the death of the survivor of my husband and myself distribute the principal outright to my
then-living children.” Corey predeceased Doris. Corey is NOT counted as a beneficiary of Doris’s
trust. You start your trust testing with ONLY those trust beneficiaries (and potential trust
beneficiaries) who are actually living at the participant’s death or may be born later.