Trust Beneficiaries -How do you ensure “see through&quo
How do you preserve the ability to stretch when the client also wants to name charities?
I have a client setting up a trust with both individuals and Charities as named beneficiaries. My concern we would like to make sure the trust qualifies as a “look/see through” so that the younger neices and nephews can preserve the ability to stretch any remaining IRA assets. My understanding is that by naming a charity as a beneficiary, we may lose the ability to stretch if the charity did not immediately cash out its interest.
Does anyone have ideas on how the attorney should draft the beneficiary section? The following is what the attorney has:
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“upon death of the grantor and the grantor’s spouse, the trust estate shall be held , amdministered and distributed by the trustee as hereinafter provided.
Division into separate trusts. The trustee shall divide the balance of the prinicpal and undistributed income, if any, of the family trust, as then constitutted into separate trust as follows:….”
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The document then names 4 named beneficiaries, “equal shares to the grantors nephews and nieces then living” and 7 charities.
It seems to me that the instruction of divising into separate trust would allow it to qualify as a “see through” ….but I’m not the expert. Anyone have any thoughts?
Permalink Submitted by Alan Spross on Fri, 2007-09-14 03:35
There have been PLRs adverse to the use of separate share trusts. Why take that risk? It would be easier to partition the IRA accounts into one with the charitable beneficiary and the other with the look through trust as beneficiary.
That way, there is no possibility that the charity could result in the loss of many years of stretched distributions for those young relatives.
The attached is pasted from Ed’s Dec, 2006 letter:
Three new Private Letter Rulings (PLRs) released on April 25, 2003 by IRS tell us that separate
accounts can be created when you name a trust as a beneficiary of your IRA or other retirement
plan, but those separate inherited IRAs will not be recognized for Required Minimum
Distribution (RMD) purposes … even if after death, the trust splits in to separate sub-trusts for
each of the trust beneficiaries. When there are multiple beneficiaries of the trust, you must use
the age of the oldest trust beneficiary (or the trust beneficiary with the shortest life expectancy)
to calculate RMDs on the inherited IRA.
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