© Robert S. Keebler, CPA, MST (920)490-5626 1 IRAs & Other Qualified Plans Payable to Trusts Presented by: Robert S. Keebler,

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 1 IRAs & Other Qualified Plans Payable to Trusts Presented by: Robert S. Keebler, CPA, MST Virchow, Krause & Company, LLP 1400 Lombardi Avenue Suite 200 Green Bay, WI 54304 rkeebler@virchowkrause.com

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 3 Maximize use of Unified Credit (where needed)Maximize use of Unified Credit (where needed) Coordinate estate plan under will or revocable trustCoordinate estate plan under will or revocable trust Generally, the IRA or qualified plan is the largest asset of the estateGenerally, the IRA or qualified plan is the largest asset of the estate To minimize income tax on distributions and thereby maximize deferralTo minimize income tax on distributions and thereby maximize deferral Why Retirement Distribution Planning is Important

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 4 Fluctuation in asset valueFluctuation in asset value Increase in the applicable exclusion amount under EGTRRAIncrease in the applicable exclusion amount under EGTRRA Fixed State applicable exclusion amountFixed State applicable exclusion amount Perceived need of surviving spousePerceived need of surviving spouse Tax apportionmentTax apportionment Why Retirement Distribution Planning is Important

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 6 Foundation Concepts IRAs are not taxed until distributedIRAs are not taxed until distributed Distributions must begin no later than one’s Required Beginning Date (RBD)Distributions must begin no later than one’s Required Beginning Date (RBD) IRA Elections are Required After DeathIRA Elections are Required After Death

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 7 Foundation Concepts Generally, April 1 of the year following the year the owner turns age 70½ is the RBDGenerally, April 1 of the year following the year the owner turns age 70½ is the RBD Once at RBD, required minimum distributions (RMD) must beginOnce at RBD, required minimum distributions (RMD) must begin

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 8 Foundation Concepts RMDs are calculated based upon prior year ending account balance divided by life expectancy factorRMDs are calculated based upon prior year ending account balance divided by life expectancy factor Prior Year 12/31 Balance Life Expectancy Factor RMD =

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 9 Life expectancy tablesLife expectancy tables – Uniform Lifetime Table – Single Life Table – Joint and Last Survivor Table Available where the spouse is the sole beneficiary and is greater than 10 years younger than the account ownerAvailable where the spouse is the sole beneficiary and is greater than 10 years younger than the account owner Foundation Concepts

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 11 Foundation Concepts Post-death RMDs based on whether “designated beneficiary” existsPost-death RMDs based on whether “designated beneficiary” exists – Only “individuals” with quantifiable life expectancy can be “designated beneficiaries” – If trust qualifies, look through to underlying trust beneficiaries Distribution out of trust to beneficiary does not make the beneficiary the “designated beneficiary”Distribution out of trust to beneficiary does not make the beneficiary the “designated beneficiary”

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 12 Foundation Concepts Permissible “designated beneficiaries”:Permissible “designated beneficiaries”: – Individuals Spouse Spouse Child Child Grandchild Grandchild Parent Parent Brother/sister Brother/sister Niece/Nephew Niece/Nephew Neighbor Neighbor −Certain Trusts

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 13 Foundation Concepts Non-permissible “designated beneficiaries”:Non-permissible “designated beneficiaries”: – Estates −Charities −Most Trusts

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 14 Foundation Concepts Death before age 70½Death before age 70½ – Five-year rule – Exceptions to the five-year rule – Delayed distributions – spousal beneficiary Death after age 70½Death after age 70½ – Life expectancy distributions if you have a designated beneficiary – Distributions must begin by December 31st of the year after death – Year of death distribution – life expectancy of IRA owner

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 15 Life Expectancy Rule Life Expectancy Rule Five-Year Rule Death Before Required Beginning Date Death On or After Required Beginning Date Designated Beneficiary Non- Designated Beneficiary “Ghost” Life Expectancy Rule Foundation Concepts

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 16 Foundation Concepts Generally, if individual beneficiaries exist, post-death RMDs are based upon oldest designated beneficiary’s life expectancy under the Single Life TableGenerally, if individual beneficiaries exist, post-death RMDs are based upon oldest designated beneficiary’s life expectancy under the Single Life Table

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 17 Foundation Concepts Spousal rollover where spouse is “sole beneficiary”Spousal rollover where spouse is “sole beneficiary” – Rollover may occur at any time Rollover from trustsRollover from trusts Rollover from estatesRollover from estates

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 18 Critical dates: September 30 of the year following the year of deathSeptember 30 of the year following the year of death – Date at which the beneficiaries are identified October 31 of the year following the year of deathOctober 31 of the year following the year of death – Date at which trust documentation (in the case where as trust is named as a designated beneficiary) must be filed December 31 of the year following the year of deathDecember 31 of the year following the year of death – Date at which the first distribution must be made by each IRA beneficiary – Date at which separate shares must be created Foundation Concepts

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 19 “Inherited IRA” Objective: Prolong IRA payments over longest possible period of time, thus increasing wealth to future generations

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 20 “Inherited IRA” An IRA is treated as “inherited” if the individual for whose benefit the IRA is maintained acquired the IRA on account of the death of the original owner.An IRA is treated as “inherited” if the individual for whose benefit the IRA is maintained acquired the IRA on account of the death of the original owner. Under the tax law the IRA assets can be distributed based upon the life expectancy of the beneficiary.Under the tax law the IRA assets can be distributed based upon the life expectancy of the beneficiary.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 21 “Inherited IRA” Two StrategiesTwo Strategies – Spousal Rollover – Inherited IRA AdvantagesAdvantages – Rollover delays RMD until spouse’s own RBD – Inherited IRA provisions allow beneficiary’s life expectancy to be used for distributions after death of IRA owner

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 22 Marital deduction should be availableMarital deduction should be available Typically the defaultTypically the default If no rollover is chosen, then the life expectancy factor of spouse is used by reference to the Single Life Table beginning in the year the IRA owner would have turned age 70½. Each year thereafter the life expectancy divisor is recalculated by referencing the Single Life Table.If no rollover is chosen, then the life expectancy factor of spouse is used by reference to the Single Life Table beginning in the year the IRA owner would have turned age 70½. Each year thereafter the life expectancy divisor is recalculated by referencing the Single Life Table. “Inherited IRA” Spousal Beneficiary

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 23 Exception to Inherited IRA rules.Exception to Inherited IRA rules. Only available to surviving spouse.Only available to surviving spouse. Allows spouse to roll over assets received as beneficiary to a new IRA in his/her own name.Allows spouse to roll over assets received as beneficiary to a new IRA in his/her own name. Spouse’s age used to determine when required minimum distributions must begin.Spouse’s age used to determine when required minimum distributions must begin. Spouse may use the Uniform Lifetime Table to determine distributions.Spouse may use the Uniform Lifetime Table to determine distributions. “Inherited IRA” Spousal Beneficiary - Rollover

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 24 Utilizes the exemption to the five year rule.Utilizes the exemption to the five year rule. Avoids IRA assets being subject to estate tax in spouse’s estate.Avoids IRA assets being subject to estate tax in spouse’s estate. Achieves “Inherited IRA” to the degree that distributions occur over life expectancy of the designated beneficiary.Achieves “Inherited IRA” to the degree that distributions occur over life expectancy of the designated beneficiary. “Inherited IRA” Child / Grandchild Beneficiary

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 25 Life expectancy of child and/or grandchild determined in year after year of the IRA owner’s death by reference to the Single Life Table and then is reduced by a value of one each subsequent year.Life expectancy of child and/or grandchild determined in year after year of the IRA owner’s death by reference to the Single Life Table and then is reduced by a value of one each subsequent year. “Inherited IRA” Child / Grandchild Beneficiary

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 26 Beneficiary Designation FormsBeneficiary Designation Forms Tax ApportionmentTax Apportionment Irrevocable Life Insurance Trust (ILIT)Irrevocable Life Insurance Trust (ILIT) “Inherited IRA” Key Issues in Making the “Inherited IRA” Work

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 27 Step One – IRA Owner creates Irrevocable Life Insurance Trust (ILIT)Step One – IRA Owner creates Irrevocable Life Insurance Trust (ILIT) Step Two – IRA Owner’s deathStep Two – IRA Owner’s death Step Three – Surviving Spouse performs an IRA rolloverStep Three – Surviving Spouse performs an IRA rollover Step Four – Surviving Spouse names children (and/or grandchildren) beneficiaries of the IRAStep Four – Surviving Spouse names children (and/or grandchildren) beneficiaries of the IRA  Tax apportionment clause should be adopted so as to not require the estate to use IRA monies to pay any estate taxes due Step Five – Surviving Spouse takes payments over his/her life expectancyStep Five – Surviving Spouse takes payments over his/her life expectancy Step Six – Surviving Spouse’s deathStep Six – Surviving Spouse’s death Step Seven – Payment of estate taxes of Surviving SpouseStep Seven – Payment of estate taxes of Surviving Spouse  Estate taxes and other expenses of the estate are paid from the proceeds of the life insurance policy held in the ILIT Step Eight – Divide Surviving Spouse’s IRA into separate shares for each child (and/or grandchildren)Step Eight – Divide Surviving Spouse’s IRA into separate shares for each child (and/or grandchildren) Step Nine – Payments made over each beneficiary’s life expectancyStep Nine – Payments made over each beneficiary’s life expectancy “Inherited IRA” Example

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 32 FACTS: IRA Value$1,000,000 Decedent’s Age 78 Surviving Spouse’s Age 72 Oldest Child’s Age 50 Youngest Grandchild’s Age 20 “Inherited IRA” Comparison

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 34 Naming a Trust as a “Designated Beneficiary” IRA distributions over the life expectancy of the oldest beneficiary An IRA Can Be Payable to a Trust Trust IRA Beneficiary Designation Form Spouse Children

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 35 Standard Issues With Naming a Revocable Living Trust as a “Designated Beneficiary” The need for proper apportionment language regarding payment of debts, expenses and taxes of estate (See PLR 9820021)The need for proper apportionment language regarding payment of debts, expenses and taxes of estate (See PLR 9820021) Recognition of income in respect of a decedent (IRD) if pecuniary funding clause is utilizedRecognition of income in respect of a decedent (IRD) if pecuniary funding clause is utilized Unanticipated loss of designated beneficiary due to the inclusion of power of appointment (general or limited)Unanticipated loss of designated beneficiary due to the inclusion of power of appointment (general or limited) Solution – Stand alone IRA trust such as IRA legacy trustSolution – Stand alone IRA trust such as IRA legacy trust

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 36 Fractional v. Pecuniary clausesFractional v. Pecuniary clauses – Recognition of income Entire trust irrevocable at death of IRA ownerEntire trust irrevocable at death of IRA owner No separate share treatmentNo separate share treatment Payment of debts, taxes, and expensesPayment of debts, taxes, and expenses – Apportionment language – Firewall provision Powers of appointmentPowers of appointment Stand alone trust – highly recommendedStand alone trust – highly recommended Adoption of older individualsAdoption of older individuals Standard Issues With Naming a Revocable Living Trust as a “Designated Beneficiary”

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 37 Revocable Living Trust as “Designated Beneficiary” Revocable trust should use a fractional funding clause to determine the marital and bypass sharesRevocable trust should use a fractional funding clause to determine the marital and bypass shares – PLRs in which pecuniary funding clause utilized and no IRD acceleration issue (PLRs 199912040, 9808043, 9744024)

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 38 Pecuniary Clause The Marital Share shall consist of assets in a pecuniary amount which, after taking into account all other property included in the Settlor’s gross estate for federal estate tax purposes which qualified for the federal estate tax marital deduction and which passes or has passed to the Settlor’s wife under this instrument or in any other manner, is equal to the smallest amount which will eliminate all federal estate tax payable by the Settlor’s estate, or if that is not possible, the amount which will result in the least federal estate tax payable by the Settlor’s estate. In determining “federal estate tax payable”, all credits and deductions against that tax shall be taken into account, provided that the federal credit for state death taxes shall only be considered for the extent it does not create or increase a state death tax which is based on the federal credit for state death taxes.The Marital Share shall consist of assets in a pecuniary amount which, after taking into account all other property included in the Settlor’s gross estate for federal estate tax purposes which qualified for the federal estate tax marital deduction and which passes or has passed to the Settlor’s wife under this instrument or in any other manner, is equal to the smallest amount which will eliminate all federal estate tax payable by the Settlor’s estate, or if that is not possible, the amount which will result in the least federal estate tax payable by the Settlor’s estate. In determining “federal estate tax payable”, all credits and deductions against that tax shall be taken into account, provided that the federal credit for state death taxes shall only be considered for the extent it does not create or increase a state death tax which is based on the federal credit for state death taxes.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 39 The Marital Share shall consist of that fractional share of the trust estate which shall be determined as follows: (a)The numeration of the fraction shall be the smallest amount which, after taking into account all other property included in the Settlor’s gross estate for federal estate tax purposes which qualifies for the federal estate tax marital deduction and which passes or has passed to the Settlor’s wife under this instrument or in any other manner, will eliminate all federal estate tax payable by the Settlor’s estate, or if that is not possible, the amount which will result in the least federal estate tax payable by the Settlor’s estate. In determining “federal estate tax payable”, all credits and deductions against that tax shall be taken into account, provided that the federal credit for state death taxes shall only be considered to the extent it does not create or increase a state death tax which is based on the federal credit for state taxes. (b)The denominator of the fraction shall be the value of the trust estate Fractional Clause

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 40 Four Requirements for ALL Trusts Trust is valid under state law − Treas. Reg. § 1.401(a)(9)-4, Q&A 5(b)(1) − Easily met Number One

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 41 Four Requirements for ALL Trusts Trust is irrevocable upon death of owner − Treas. Reg. § 1.401(a)(9)-4, Q&A 5(b)(2) − Difficult to satisfy when using joint revocable trust Number Two

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 42 Four Requirements for ALL Trusts Beneficiaries of the trust are identifiable from the trust instrument − Treas. Reg. § 1.401(a)(9)-4, Q&A 5(b)(3) Number Three

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 45 Conduit Trust A trust in which all distributions from the IRA are immediately distributed to the trust beneficiary/beneficiaries.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 47 Accumulation Trust vs. Conduit Trust In the conduit trust, the distributions to the beneficiary is always, at least, the total of withdrawals from the IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 48 Accumulation Trusts The key issue in analyzing an accumulation trust is to determine which beneficiaries are “countable.” All beneficiaries are countable unless such beneficiary is deemed to be a “mere potential successor” beneficiary.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 49 Accumulation Trust – Example #1 Mother – Age 80 Trust Discretionary Distributions Entire Trust outright upon Grandchildren reaching age 30 If Grandchildren die before reaching age 40 Mother is “countable” for determining applicable life expectancy See PLR 200228025 and Treas. Reg. § 1.401(a)(9)-5 Q&A 7 Child – age 30 IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 50 Accumulation Trust – Example #2 IRA Sister Age 67 Grandchildren Trust Discretionary Distributions Grandchildren Entire Trust outright upon Grandchildren reaching age 30 If Grandchildren die before reaching age 30 Accumulation Trust Sister measuring life for determining required minimum distributions Facts same as PLR 200228025

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 51 Accumulation Trust – Example #3 Trust To Red Cross Child #1 Discretionary Distributions At Child #1’s death Contingent beneficiary must be counted. Non-individual contingent beneficiary. No designated beneficiary status. Treas. Reg. § 1.401(a)(9)-5 Q&A 7 IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 52 Accumulation Trust – Example #4 QTIP Trust Issue of IRA owner in such a manner (in trust or otherwise) as the surviving spouse appoints by will. Spouse All income At spouse’s death Contingent beneficiaries must be counted. Possible non- individual contingent beneficiaries. General Power of Appointment disqualifies accumulation trust. IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 54 Conduit Trust – Example #1 Mother Age 80 Trust Discretionary Distributions, but no less than total withdrawals from IRA Entire Trust outright upon Grandchildren reaching age 30 If Grandchildren die before reaching age 40 Mother is not “countable” for determining applicable life expectancy Treas. Reg. § 1.401(a)(9)-5 Q&A 7 Child – age 30 IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 55 Conduit Trust – Example #2 Trust To Red Cross Child #1 All distributions from IRA At Child #1’s death See Treas. Reg. § 1.401(a)(9)-5 Q&A 7 IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 56 Conduit Trust – Example #2 As all distributions from the IRA are required to be distributed to the beneficiary; if Child #1 lives to his or her life expectancy, the entire IRA will be distributed to Child #1. Therefore, Child #1 is the only “countable” beneficiary and the Red Cross can be ignored.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 57 Conduit Trust – Example #3 Trust To my lineal descendants as appointed by Child #1 in his/her last will and testament Child #1 All distributions from IRA At Child #1’s death IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 60 Conduit Trusts QTIP Trust Issue of IRA owner in such a manner (in trust or otherwise) as the surviving spouse appoints by will. Spouse Greater of RMD or all income At spouse’s death IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 61 Conduit Trusts In this instance, the QTIP trust is designed as requiring the greater of income or RMD be distributed. Additional distributions may occur and be trapped inside the trust, therefore, the trust is not a conduit trust but rather must be tested as a lifetime distribution trust. Better language : Greater of income or total withdrawals from IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 62 Disclaimer Planning Disclaimer must be “qualified.” I n writing I n writing Within 9 months Within 9 months No acceptance of the interest or any of its benefits, No acceptance of the interest or any of its benefits, Interest passes without any direction on the part of the person making the disclaimer Interest passes without any direction on the part of the person making the disclaimer

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 63 Alex dies at age 70. Alex’s wife disclaims amount of Alex’s unified credit to bypass trust for benefit of herself and their children – Disclaimer must occur within nine months from date of death – Disclaimer must be served to the IRA custodian – Disclaimer must be fractional to avoid immediate income taxation Disclaimer Planning - Example

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 64 Disclaimer Planning IRA Spouse Disclaimer must be Qualified Disclaimer Life Expectancy of Oldest Beneficiary of Trust Trust FBO Spouse and Children Spouse Disclaims

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 65 Disclaimer Planning IRA IRA LEGACY Trust F/B/O SPOUSE and CHILDREN Contingent = Mother Age 88 DB Status – Trust is Irrevocable No Separate Share Treatment Life Expectancy of Oldest Beneficiary Mother and Spouse Disclaim 100% Oldest Child is DB

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 66 Disclaimer Planning IRA Children in same fashion as provided under the Family Trust as if spouse had died PLR 200522012 (Obtained by Virchow, Krause & Company) Life Expectancy of Oldest Beneficiary of Family Trust = Spouse Third Contingent Beneficiary – If spouse disclaims IRA and Benefit under First and Second Contingent Beneficiary Primary Beneficiary First Contingent Beneficiary – If spouse disclaimed IRA as Primary Beneficiary Second Contingent Beneficiary – If spouse disclaimed IRA and Benefit under First Contingent Beneficiary Spouse Marital Deduction Trust Family Trust Fractional Disclaimer Disclaimer

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 67 A beneficiary's disclaimer of a beneficial interest in a decedent's IRA is a qualified disclaimer even though, prior to making the disclaimer, the beneficiary receives the required minimum distribution for the year of the decedent's death from the IRA. Disclaimer Planning Revenue Ruling 2005-36

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 68 SCENARIO 1 – Pecuniary Disclaimer by Spouse IRA Spouse Child A Primary Beneficiary First Contingent Beneficiary – If spouse disclaimed IRA as Primary Beneficiary Pecuniary disclaimer of IRA balance ($600,000) plus income earned since date of death ($12,000) Required Minimum Distribution ($100,000) Result: Spouse’s pecuniary disclaimer, after taking RMD, still results in a “qualified disclaimer” Key assumptions: IRA Balance (date of death) - $2,000,000 IRA Balance (date of disclaimer) - $2,040,000 Required Minimum Distribution - $100,000 Disclaimer Planning Revenue Ruling 2005-36

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 69 SCENARIO 2 – Fractional Disclaimer by Spouse IRA Spouse Child A Primary Beneficiary First Contingent Beneficiary – If spouse disclaimed IRA as Primary Beneficiary Fractional disclaimer (30%) of net remaining IRA balance after RMD (including income attributable to RMD) plus income earned since date of death Required Minimum Distribution ($100,000) plus income earned since date of death ($2,000) Result: Spouse’s fractional disclaimer, after taking RMD (plus attributable income), still results in a “qualified disclaimer” Key assumptions: IRA Balance (date of death) - $2,000,000 IRA Balance (date of disclaimer) - $2,040,000 Required Minimum Distribution - $100,000 Disclaimer Planning Revenue Ruling 2005-36

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 70 SCENARIO 3 – Full Disclaimer by Child A IRA Child A Spouse Primary Beneficiary First Contingent Beneficiary – If Child A disclaimed IRA as Primary Beneficiary Full disclaimer of net remaining IRA balance after RMD (including income attributable to RMD) plus income earned since date of death Required Minimum Distribution ($100,000) plus income earned since date of death ($2,000) Result: Child A’s full disclaimer, after taking RMD (plus attributable income), still results in a “qualified disclaimer “ Key assumptions: IRA Balance (date of death) - $2,000,000 IRA Balance (date of disclaimer) - $2,040,000 Required Minimum Distribution - $100,000 Disclaimer Planning Revenue Ruling 2005-36

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 71 Spousal Rollover Planning Through Estate Estate Spouse sole residuary beneficiary Surviving spouse is executor PLR 200236052 IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 72 Spousal Rollover Planning Through Trust Rev. Trust Spouse Trustee of GPA Trust Spouse is trustee vested with power to allocate assets among trusts. PLR 199942052 Rollover Allowed Marital Trust GPA Credit Shelter Trust IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 73 September 30 th Determination Date Designated Beneficiary not determined until September 30 of the year following the year of the IRA owner’s death Treas. Reg. § 1.401(a)(9)-4, Q&A 4(a) Allows for disclaimer planning

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 74 September 30 th Determination Date If a beneficiary dies before the September 30 date without disclaiming, such beneficiary continues to be treated as a beneficiary in determining the designated beneficiary Treas. Reg. § 1.401(a)(9)-4, Q&A 4(c)

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 75 September 30 th Determination Date Example Jane names a trust as beneficiary of her IRA. 90% of the trust is payable to her children over their lifetimes. 10% of the trust is payable to Jane’s favorite charity. If the charity’s 10% is paid out of the trust by September 30 th of the year following the year of Jane’s death, the charity’s interest will not taint the rest of the trust. See PLR 200218039 (Obtained by Virchow, Krause & Company)

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 76 September 30 th Determination Date Example John names his sister as primary beneficiary of his IRA and his nephew as contingent beneficiary. If John’s sister dies before September 30 th of the year following the year of John’s death without performing a qualified disclaimer, RMDs are still calculated based on the sister’s life expectancy.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 77 September 30 th Determination Date Example John names his wife as primary beneficiary of his IRA and his grandchild as contingent beneficiary. If John’s wife performs a qualified disclaimer by September 30 th of the year following the year of John’s death, RMDs can be calculated based on the grandchild’s life expectancy.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 78 Separate Share Rule In proper circumstances, the IRS allows the division of the IRA into separate shares per beneficiaryIn proper circumstances, the IRS allows the division of the IRA into separate shares per beneficiary In the case of an individual beneficiary, this must be determined by December 31 of the year following the year of deathIn the case of an individual beneficiary, this must be determined by December 31 of the year following the year of death – Separate shares established when divided No separate shares available for estatesNo separate shares available for estates Disclaimer ruleDisclaimer rule Death by September 30Death by September 30

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 79 Separate Share Rule Payable to single trust No separate shares identified in the beneficiary designation form IRA paid over oldest life expectancy

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 80 Separate Share Rule IRA payable to multiple trusts Each trust named in beneficiary designation form IRA paid trust beneficiary’s life expectancy

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 81 Payout by September 30Payout by September 30 Division by December 31Division by December 31 Separate Share Rule IRA Where Charity is Named as One of the Beneficiaries

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 82 60-Day Rollover Rollover must occur within 60 Days Rollover must occur within 60 Days Failure = Distribution = Taxable Income Failure = Distribution = Taxable Income

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 83 60-Day Rollover - Relief Exception to 60-Day Rollover Rule Exception to 60-Day Rollover Rule See PLR 200332026 See PLR 200332026 IRC § 408(d)(3)(I) provides that the Secretary may waive the 60-day requirement where: IRC § 408(d)(3)(I) provides that the Secretary may waive the 60-day requirement where: – the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual Relief available under Rev. Proc. 2003-16 Relief available under Rev. Proc. 2003-16 – IRS will consider all relevant facts and circumstances, including: errors committed by a financial institution;errors committed by a financial institution; inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error;inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); andthe use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and the time elapsed since the distribution occurred.the time elapsed since the distribution occurred.

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 85 Roth IRAs 100% of growth is tax-exempt100% of growth is tax-exempt No required minimum distributions at age 70½No required minimum distributions at age 70½ $100,000 Modified Adjusted Gross Income (MAGI) limitation$100,000 Modified Adjusted Gross Income (MAGI) limitation

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 86 Beginning January 1, 2005, required minimum distributions do not count towards the $100,000 MAGI limitation for purposes of Roth IRA conversions – Applies only to IRAs and not to any other qualified retirement plans (see Treas. Reg. §1.408A-3 Q&A 6) (see Treas. Reg. §1.408A-3 Q&A 6) Roth IRAs

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 88 Qualified distributions are not subject to income tax Non-qualified distributions will be subject to income tax Taxation of Distributions from Roth IRAs

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 89 Certain Distributions Within Five Years Are Non- Qualified Five-year period including the year of contributionFive-year period including the year of contribution Five-year period including the year of rolloverFive-year period including the year of rollover Basis distributions firstBasis distributions first Taxation of Distributions from Roth IRAs

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 90 Basis Can be Withdrawn Tax-Free (FIFO Method)Basis Can be Withdrawn Tax-Free (FIFO Method) Distributions are not subject to income tax if they do not exceed aggregate contributions and/or conversions to the Roth IRA.Distributions are not subject to income tax if they do not exceed aggregate contributions and/or conversions to the Roth IRA. Taxation of Distributions from Roth IRAs

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 91 (1)Taxpayers have special favorable tax attributes including charitable deduction carry-forwards, investment tax credits, etc. (2) Suspension of the minimum distribution rules at age 70½ provides a considerable advantage to the Roth IRA holder. (3) Taxpayers benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the income tax deduction obtained when a traditional IRA is subject to estate tax. (4) Taxpayers who can pay the income tax on the IRA from non IRA funds benefit greatly from the Roth IRA because of the ability to enjoy greater tax-free yields. (5) Taxpayers who need to use IRA assets to fund their $675,000 unified credit bypass trust are well advised to consider making a Roth IRA election for that portion of their overall IRA funds. (6) Taxpayers making the Roth IRA election during their lifetime reduce their overall estate, thereby lowering the effect of higher estate tax rates. (7) Because federal tax brackets are more favorable for married couples filing joint returns than for single individuals, Roth IRA distributions won’t cause an increase in tax rates for the surviving spouse when one spouse is deceased because the distributions are tax-free. Seven Reasons to Convert to a Roth IRA

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 92 * NOTE: Under IRC §691(c), a deduction is allowed ONLY for federal estate taxes paid. Advantages of Paying Income Tax Prior to Estate Tax

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 93 Roth IRA Conversions - Tactical Considerations Utilize unused charitable contribution carryoversUtilize unused charitable contribution carryovers Offset current year ordinary lossesOffset current year ordinary losses Utilize current year Net Operating Losses (NOL) or carryovers from prior yearsUtilize current year Net Operating Losses (NOL) or carryovers from prior years Utilize Alternative Minimum Tax (AMT) carryoversUtilize Alternative Minimum Tax (AMT) carryovers

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 94 Taxpayers may recharacterize (i.e. “undo”) the Roth IRA conversion in current year or by the filing date of the current year’s tax returnTaxpayers may recharacterize (i.e. “undo”) the Roth IRA conversion in current year or by the filing date of the current year’s tax return - Recharacterization can take place as late as 10/15 in the year following the year of conversion Taxpayers may choose to “reconvert” their recharacterizationTaxpayers may choose to “reconvert” their recharacterization - Reconversion may only take place at the later of the following two dates: (1) The tax year following the original conversion OR (2) 30 days after the recharacterization Roth IRA Conversions - Tactical Considerations

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 95 Roth Conversion PeriodRecharacterization / Reconversion Period 1/1/2005 – First day conversion can take place 2005 12/31/2005 – Last day conversion can take place 4/15/2006 – Normal filing date for 2005 tax return / last day to recharacterize 2005 Roth IRA conversion 10/15/2006 – Latest filing date for 2005 tax return / last day to recharacterize 2005 Roth IRA conversion 12/31/2006 2006 Roth IRA Conversion Timetable

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 97 Bankruptcy & IRAs Prior Law 11 U.S.C. §522(d)(10)(E) holds that retirement assets may be exempted from the bankruptcy estate if:11 U.S.C. §522(d)(10)(E) holds that retirement assets may be exempted from the bankruptcy estate if: 1) The right to receive payment is from: Stock bonusStock bonus PensionPension Profit-sharing planProfit-sharing plan Annuity ORAnnuity OR Similar plan or contractSimilar plan or contractAND 2) The right to receive payment is on account of: IllnessIllness DisabilityDisability DeathDeath Length of service ORLength of service OR AgeAge AND AND 3) The right to receive payment is “reasonably necessary to 3) The right to receive payment is “reasonably necessary to support” the account holder or his dependents support” the account holder or his dependents

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 98 11 U.S.C. §52211 U.S.C. §522 – Retirement Asset Protections IRA and Roth IRA LimitationsIRA and Roth IRA Limitations $1 Million$1 Million – Rollover IRA Protections Separate AccountsSeparate Accounts – Protection for Business Owners 11 U.S.C. §54111 U.S.C. §541 – Coverdell Accounts and 529 Plans 2005 Bankruptcy Act

© Robert S. Keebler, CPA, MST rkeebler@virchowkrause.com (920)490-5626 99 What have we learned from this act? 1.Rollover and contributory IRAs should not be commingled −Keep rollover IRAs pristine 2.Roth IRAs and traditional IRAs protection are afforded the same protection −Analyze conversions before bankruptcy 2005 Bankruptcy Act

© Robert S. Keebler, CPA, MST (920)490-5626 1 IRAs & Other Qualified Plans Payable to Trusts Presented by: Robert S. Keebler,

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© Robert S. Keebler, CPA, MST (920)490-5626 1 IRAs & Other Qualified Plans Payable to Trusts Presented by: Robert S. Keebler,

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