IRAS AND TRUSTS David B. McKinney

 SCOPE.  ALL IRAS EXCEPT ROTHS.  MANY QUALIFIED DC PLANS.

 PLAN TERMS CAN REDUCE YOUR OPTIONS.  DC PLANS – REAL CONCERN.  “BIG BOX” PROVIDERS.

 INCOME – ALWAYS TAXED WHEN DISTRIBUTED.  TAXED WHEN ASSIGNED.  DON’T ASSIGN OWNERSHIP TO A TRUST OR FLP!

 ESTATE TAX:  NO STEPUP.  WITHDRAW: TWO TAXES!  SELL STEPPED-UP ASSETS TO PAY.

 HORROR STORY:  $1,000,000 IRA. AT DEATH:  ( 400,000) ESTATE  ( 240,000) INCOME  $ 360,000NET TO FAMILY

 OKLAHOMA MAY EXEMPT SOME DISTRIBUTIONS FROM STATE INCOME TAX.

 BEST SOURCE OF AFTER- DEATH CHARITABLE BEQUESTS:  NO ESTATE OR INCOME TAX.

 INSTALLMENTS: DEFER INCOME TAX.  RMDS.

 “LIFE EXPECTANCY”:  65: ABOUT 88.  MARRIED, BOTH 65: ABOUT 92.  AGE 90 RULE.

 PLANNING FOR DEATH:  Pay: 1 Yr., or 5 Yrs. or RMD.  OLDEST RMD FOR ALL. ▪ SEPARATE ACCOUNTS.  NO RECALCULATION.

 BENEFICIARY CAN ELECT:  INSTALLMENTS. ▪ NOT IN 401(k)/DC? BUT ROLLOVER …  IMMEDIATE PAYMENT.

 BENEFICIARY CAN INVEST.  MULTIPLE BENEFICIARIES.

 WHY WOULD YOU DO IT?

 VALID, IRREVOCABLE, TRUST.  HUMAN BEINGS AS BENEFICIARIES.  IDENTIFIABLE UNDER ALL POSSIBLE SCENARIOS.  THE ADMINISTRATOR HAS A COPY OF THE TRUST OR LIST OF ALL BENEFICIARIES & CONDITIONS TO ENTITLEMENT. (a)The trust must be a valid trust under state law; (a)The trust must be irrevocable or become irrevocable upon the IRA owner’s death; (b)The trust must have identifiable beneficiaries who are to receive the interest in the IRA; and (c)The trust document (or a certified list of all beneficiaries, including contingent and remainder beneficiaries, and a description of conditions on their entitlement to the interest in the IRA) must be provided to the plan administrator.

 HANDOUT.  TRUSTEE CAN ALLOCATE TO CHARITIES OR HUMANS.  PLR RIGHTS.  “RESIGN.”  EDUCATION.

 1099 GOES TO THE TRUSTEE??  CHARITIES!  POWERS OF APPOINTMENT DISQUALIFY.  REQUIREMENTS FOR SPOUSES?  LOCATION OF PROOF – NOTICE TO ADMINISTRATOR?  “BIG BOX” PROVIDERS?

 INSOLVENT TRUST OR BENEFICIARIES.  SHORT-TERM TRUST WITH INSTALLMENTS.  TRUSTEE SOPHISTICATION.  INVESTMENT AUTHORITY.  OLDEST RMD FOR ALL.  FAMILY DISPUTES.

 PLR :  SEPARATE THE IRA INTO ACCOUNTS.  TRUSTEE-TO-TRUSTEE IRA TRANSFERS  EACH IRA IS “INHERITED.”  RMD: OLDEST BENEFICIARY.

 [DISCUSSION]

 CAN THE TRUSTEE DISCLAIM AND PASS TO INDIVIDUALS?  NEED CONSENTS.  ATTRIBUTED TO THE BENEFICIARY?  REVIEW THE IRA’S DEFAULT BENEFICIARIES.

 DISTRIBUTE IMMEDIATELY AND PAY THE TAXES.  THE DEFERRAL IS NOT WORTH MUCH!

 CONCEPT.  NEED: FLEXIBLE TRUSTEE.  LOCAL TRUSTEES …

 BLENDED FAMILY.  SPENDTHRIFT.  AGE GAP.  UNSOPHISTICATED TRUSTEE.

 INVESTMENT DIRECTION.  CREDITORS – DECEDENT OR BENEFICIARIES.  SHAKY MARRIAGES – BENEFICIARIES.

 TRUSTS WITH CHARITIES OR POAs.  MEDICAID.

 FLEXIBILITY: YOU CAN DO ANYTHING THAT YOU COULD DO WITH A TRUST.

 DISCLAIMERS.  QTIP.  BYPASS, CREDIT SHELTER, GST TERMS.

 EXTRA DISTRIBUTIONS.  HEMS OR OTHER STANDARDS.

 YOU ALSO CAN:  SEPARATE ACCOUNTS & RMDS.  SEPARATE INVESTMENTS.  PRE-SET THE INSTALLMENT METHOD.

CURRENT PROJECT: LOCKED- IN IRA WITH MEDICAID SUPPLEMENTAL BENEFIT TRUST TERMS.

 AVOID A GENERATION OF INCOME/ESTATE TAXES.  PREVENT SECOND SPOUSE ROLLOVER.

 AVOID DISTRIBUTION TO THE DECEDENT’S CREDITORS.