Presenting a live 90-minute webinar with interactive Q&A Trust Dispositions of IRAs and Qualified Plans: Structuring See-Through Trusts and Stretch Provisions TUESDAY, JANUARY 17, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Larry S. Hartley, Strauss Attorneys , Asheville, N.C. Carter B. Webb, Strauss Attorneys , Asheville, N.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
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Trust Dispositions of IRAs and Qualified Plans: Structuring See-Through Trusts and Stretch Provisions HOSTED BY ATTORNEYS LARRY S. HARTLEY & CARTER B. WEBB
Course Outline I. Accumulation vs. Conduit Trusts for Holding Qualified Plans a. Overview b. Accumulation Trusts c. Conduit Trusts II. Drafting Trust Provisions to Ensure Tax-Efficient Disposition of Qualified Plans a. Language for Conduit Trusts b. Language for Accumulation Trusts III. QTIP Trusts a. QTIP Trust Defined b. QTIP Trust as a Beneficiary of an IRA c. Language Required for a QTIP Trust IV. Special Provisions for Spouses a. Spousal Rights After the Death of the First Spouse b. Divorce Concerns for Beneficiaries c. Special Needs Trusts and Medicaid Issues V. Required Minimum Distribution Considerations for Beneficiaries VI. Trust Advisor/Trust Protector 6
Accumulation vs. Conduit Trusts for Holding Qualified Plans Overview of naming a trust as a beneficiary of an IRA – See- Through Trust 7
Accumulation vs. Conduit Trusts for Holding Qualified Plans Overview of naming a trust as a beneficiary of an IRA – See-Through Trust The initial question in working with clients who own IRAs or other tax qualified retirement accounts (hereinafter just referred to as IRAs, for convenience) is as follows: What do you want your IRA to do for your beneficiaries after your death? If the answer to that question is that you want your IRA to benefit your loved ones and not be taken away from them by ex-spouses or creditors and you do not want your loved ones to blow it all in short order after your death, then you are a client who needs sophisticated IRA planning. Simply leaving the IRA at death to the beneficiary as an outright distribution or as transfer to the beneficiary as an inherited IRA will not accomplish these goals. 8
Accumulation vs. Conduit Trusts for Holding Qualified Plans Overview of naming a trust as a beneficiary of an IRA – See-Through Trust Frequently, the solution to this issue is to leave the IRA to a trust share for certain beneficiaries. However, without sophisticated drafting, the tax advantaged stretch out of the IRA for the life expectancy of the beneficiary after the death of the original owner could be lost. The IRS has strict rules regarding how long an inherited IRA can last after the original owner’s death. Required Minimum Distributions (RMDs) are fairly easily calculated using the IRS’s Uniform Lifetime Tables. However, when a trustee of a trust is the beneficiary, then language of the trust will determine whether that trust will be able to enjoy an extended period of years over which IRA withdrawals may be stretched, thus continuing tax deferred (for a Traditional IRA) or tax free growth (for a Roth IRA). 9
Accumulation vs. Conduit Trusts for Holding Qualified Plans Overview of naming a trust as a beneficiary of an IRA – See-Through Trust With many general practitioners, or with unsophisticated planning documents, one of two results will occur: • 1. IRA may have to be liquidated in as little as five years; or • 2. Trustee may have little or no control where IRA withdrawals must land. 10
Accumulation vs. Conduit Trusts for Holding Qualified Plans Overview of naming a trust as a beneficiary of an IRA – See-Through Trust Treasury Regulation §1.401(a)(9)-4, A-5(a-b) allows trusts to be named as beneficiaries and states the following: (a) If the requirements of paragraph (b) of this A – 5 are met with respect to a trust that is named as the beneficiary of an employee under the plan, the beneficiaries of the trust (and not the trust itself) will be treated as having been designated as beneficiaries of the employee under the plan for purposes of determining the distribution period under section 401(a)(9). (b) The requirements of this paragraph (b) are met if, during any period during which required minimum distributions are being determined by treating the beneficiaries of the trust as designated beneficiaries of the employee, the following requirements are met — 1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus. 2. The trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee. 3. The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of A – 1 of this section from the trust instrument. 4. The documentation described in A – 6 of this section has been provided to the plan administrator. If a trust meets the above four requirements, then it is considered a ‘See - Through Trust’. 11
Accumulation vs. Conduit Trusts for Holding Qualified Plans Overview of naming a trust as a beneficiary of an IRA – See-Through Trust A-1 and A-6 of Treasury Regulation §1.401(a)(9)-4 referenced above are copied below: Q-1. Who is a designated beneficiary under section 401(a)(9)(E)? A-1. A designated beneficiary is an individual who is designated as a beneficiary under the plan. An individual may be designated as a beneficiary under the plan either by the terms of the plan or, if the plan so provides, by an affirmative election by the employee (or the employee's surviving spouse) specifying the beneficiary. A beneficiary designated as such under the plan is an individual who is entitled to a portion of an employee's benefit, contingent on the employee's death or another specified event. For example, if a distribution is in the form of a joint and survivor annuity over the life of the employee and another individual, the plan does not satisfy section 401(a)(9) unless such other individual is a designated beneficiary under the plan. A designated beneficiary need not be specified by name in the plan or by the employee to the plan in order to be a designated beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan. The members of a class of beneficiaries capable of expansion or contraction will be treated as being identifiable if it is possible, to identify the class member with the shortest life expectancy. The fact that an employee's interest under the plan passes to a certain individual under a will or otherwise under applicable state law does not make that individual a designated beneficiary unless the individual is designated as a beneficiary under the plan. See A-6 of § 1.401(a)(9)-8 for rules which apply to qualified domestic relation orders. 12
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