Preserving stretch IRA for beneficiary
Client has revised her survivor’s trust so that her daughter, who is the sole beneficiary, receives everything in trust to be managed by a corporate trustee. It also states that if the estate is subject to estate taxes, then the trustee is directed to make specific charitable bequests to two separate organizations and leave the remainder to the daughter. The attorney wants to name the survivor’s trust as beneficiary to the IRA, but has acnknowledged wanting to preserve the stretch and believes they have done so by naming the daughter as a direct beneficiary to the trust. Does the potential charitable bequests interfere with this at all? If so, what can they do to work around that?
Permalink Submitted by Bruce Steiner on Sun, 2007-11-04 02:00
Why not simply leave the IRA to a trust for the benefit of the daughter (or to the charities, if she has a taxable estate)?
Permalink Submitted by [email protected] on Mon, 2007-11-05 17:16
Based on your suggestions, are you implying that the current arrangement would adversely affect the stretch on the IRA if the survivor’s trust is named directly? They don’t want to name the charities directly as beneficiaries of the IRA because they only want to give to charity if the estate is subject to tax, and that is still uncertain based on the current estate tax laws. Setting up a separate trust for the daughter that the IRA be named to would just create more legal fees that we’d rather avoid unless it’s necessary.
Permalink Submitted by Alan Spross on Mon, 2007-11-05 17:50
It does not sound like the client’s attorney is confident that the current trust is qualified based on all the requirements per page 38 of Pub 590.
That should be re checked. With respect to the charitable beneficiary, it would be imperative that the beneficiary be cashed out and otherwise removed as a possible beneficiary no later than 9/30 in the year following death, or the stretch would be lost. The amount of the taxable estate should be known prior to that date.