IRA Conduit Trust

[debee]

I need to set up a conduit trust for my IRA. I know, I know - hire a lawyer. Nolo has a great book for setting up living trusts, but I've yet to find something comparable for pass-through trusts. Anyone know of any good resources?

[LadyInTheRed]

I found some links that I think will help you. The first two links have sample language you can add to the trust in the Nolo book. I don't know anything about the authors, but the language is similar to what the attorneys I work with use. The third link is an article by Natalie Choate who is a well respect expert on estate planning for retirement benefits.

http://dev.greensfelder.com/publicDocs/DOCS-906474-v1-Final_MOBar_retmnt_article.pdf

http://www.texastaxsection.org/LinkClick.aspx?fileticket=Mri8wfi22HI%3D&tabid=80

http://www.uchastings.edu/faculty-administration/faculty/adjuncts/class-websites/maring/Maring-Class7-ConduitTrust.pdf

I can't tell you whether these forms are sufficient. Read the information regarding IRS requirements and make sure you are comfortable that whatever you use is sufficient.

The Nolo book is good resource. The attorneys I work with recommend it to people who call and have simple estates that don't justify the upscale fees our firm charges. But, people run into problems when they start revising the forms in the book. Don't delete anything from the forms unless you understand the purpose of what you are deleting and make sure no other portions of the trust refer to the section you delete. When you add provisions to the Nolo forms, make sure they don't contradict other terms of the trust. When you are done, read the trust very carefully to make sure everything fits together and makes sense.

Debee, I believe you have minor children. Once they are adults, if you aren't concerned about them being able to have direct access to the IRA, you should consider making them the beneficiaries of the IRA, instead of the trust.

An option to a conduit trust is to roll your IRA to a trusted IRA. I don't know much about trusted IRAs and it may be an expensive option. If you are interested, contact the institution where your IRA is held and ask if they offer them.

[debee]

Thanks, LITR. I will check out these links.

I want a Conduit Trust so the kids have access (if needed) but so they can also stretch out the required minimum distributions based on their life expectancy at the time of inheritance. None of the other options (that I'm aware of) do that.

Hopefully they won't be inheriting it at all and I will spend it down in my 80's on international travel and wild parties.

[tobee43]

Thanks, LITR. I will check out these links.

I want a Conduit Trust so the kids have access (if needed) but so they can also stretch out the required minimum distributions based on their life expectancy at the time of inheritance. None of the other options (that I'm aware of) do that.

Hopefully they won't be inheriting it at all and I will spend it down in my 80's on international travel and wild parties.

kudo's to you for doing this yourself. i have being going back and fro to calif. had to work on a spinging trust and pulled about 50 years forward...what a MESS.

after looking at all this stuff, a conduit trust sounds great. since a conduit trust, which is a trust that simply receives the distributions from the IRA and then passes the income out to the beneficiaries, can't it simply just say that??? just with the heading and then the instuction? i would think that would work?

[LadyInTheRed]

Thanks, LITR. I will check out these links.

I want a Conduit Trust so the kids have access (if needed) but so they can also stretch out the required minimum distributions based on their life expectancy at the time of inheritance. None of the other options (that I'm aware of) do that.

Losing the ability stretch out the payments is only an issue if a trust is the beneficiary of the IRA, in which case you need the conduit trust provisions. If you make the individuls the beneficiaries of the IRA, they can stretch out the payments. We usually recommend people not make their trust the primary beneficiary of an IRA unless the beneficiaries are minors, can't be trusted to manage their money or need creditor protection.

Hopefully they won't be inheriting it at all and I will spend it down in my 80's on international travel and wild parties.

LOL! When my mom talks about being careful with her money so there is something left for my sisters and me, I always tell her that she should go travel and spend her money enjoying retired life instead of worrying about what she leaves for us.

[LadyInTheRed]

Oh, there is another point I forgot to make. If a trust is a beneficiary and the only beneficiaries are individuals (i.e., there are no charitable organizations listed as beneficiaries), the IRA can be stretched out based on the life expectancy of the oldest beneficiary, even without the conduit provisions. So, if the beneficiaries are all individuals and close in age, the conduit trust may not be worth the trouble.

Also, a clarrification. If the individuals are beneficiaries of the IRA, the IRA would have to be divided after your death in order for each beneficiary to use his/her own life expectancy. If the IRA is not divided, the distributions would be based on the life expectancy of the oldest beneficiary.

The first link I provided explains the issues well.

[LadyInTheRed]

after looking at all this stuff, a conduit trust sounds great. since a conduit trust, which is a trust that simply receives the distributions from the IRA and then passes the income out to the beneficiaries, can't it simply just say that??? just with the heading and
then the instuction? i would think that would work?

The conduit trust provisions require the creation of a separate trust to administer each beneficiary's share of the IRA so that (1) the IRA can be separate from any assets distributable to any beneficiaries that are not individuals and (2) the distributions can be stretched over each beneficiary's lifetime instead of all beneficiaries having to use the oldest beneficiary's life expectancy.

[tobee43]

The conduit trust provisions require the creation of a separate trust to administer each beneficiary's share of the IRA so that (1) the IRA can be separate from any assets distributable to any beneficiaries that are not individuals and (2) the distributions can be stretched over each beneficiary's lifetime instead of all beneficiaries having to use the oldest beneficiary's life expectancy.

certainly sounds like the safest and most effective way to protect the distribution of the IRA and possibly also the tax ramifications if any. (although, i understand now the fed tax limit as gone up), i have no idea about calif state and how they handle any tax issues on that type of trust or what if any exceeds any set limits? is it not included with the total of the value of the entire estate then? interesting.

i also have to mention, only because of the recent work i have been doing in calif. that calif is a whole different planet when it comes to this estate planning and execution and preparation.

[df04527]

Reading this thread reminds me of how badly I need to learn and understand this trust thing. Sometimes it feels like everything is so darn complicated.......Sigh......

just sayin' - carry on... :o

[tobee43]

Reading this thread reminds me of how badly I need to learn and understand this trust thing. Sometimes it feels like everything is so darn complicated.......Sigh......

just sayin' - carry on... :o

it's like an never-ending story you got the revocable trusts, irrevocable trusts, bypass of family trusts...or the generation-skipping trusts...how about the qualified personal residence trusts, and yes, there are MORE types...need i say more...unreal. and then once you do thousand or so amendments you have to spring the trust forward...aka and appropriately called the springing trust...LOL!!!!!! it's absolutely nuts, that's all i can say. however, what debee is trying to do is plan carefully for the future of her kids which many of us don't do. and then when you think you understand a few, don't get to comfortable because something's going change. wheeeeeeww...

[debee]

kudo's to you for doing this yourself. i have being going back and fro to calif. had to work on a spinging trust and pulled about 50 years forward...what a MESS.

after looking at all this stuff, a conduit trust sounds great. since a conduit trust, which is a trust that simply receives the distributions from the IRA and then passes the income out to the beneficiaries, can't it simply just say that??? just with the heading and then the instuction? i would think that would work?

Thanks, tobee. Kudos may be premature as I've been researching this topic for awhile now and have yet to find a fill-in-the-blanks type form that I can use. The NOLO book on Living Trusts is great and they have printable fill-in-the-blanks forms for that kind of trust, but I won't be designating the Living Trust as an IRA beneficiary and I can't find a similar source for the Conduit Trust. There's a book at Amazon, but I hesitate because the author looks fly-by-night.

*pulling out hair* ... or maybe I should say: *pulling out wallet*

The IRS has five requirements regarding Conduit, aka:"see through", trusts and IRAs and I wouldn't want to risk getting any of them wrong.

Everything I've read so far suggests that I need and want a Conduit Trust. Another benefit is that if either of my kids grows up to be a moron, the trust protector can stop the distributions and convert the conduit trust into an accumulation trust. And in the event of my death, my kids would be raised by my mother which significantly increases their chances of growing up to be morons.

[debee]

Losing the ability stretch out the payments is only an issue if a trust is the beneficiary of the IRA, in which case you need the conduit trust provisions. If you make the individuls the beneficiaries of the IRA, they can stretch out the payments. We usually recommend people not make their trust the primary beneficiary of an IRA unless the beneficiaries are minors, can't be trusted to manage their money or need creditor protection.

The problem is that my 'individuals' are minors so they can't legally manage the IRAs. So then I need to name a guardian of property for them or a custodian who will transfer the RMDs to a UTMA account. I researched all these options prior to deciding on the Conduit Trust and also considering the wider facts regarding the overall estate value, my citizenship, the whereabouts of the guardian, etc. So, I definitely know the options and what is best in my situation, the problem is I don't know how to draft it!!!!

And I guess a secondary problem is that I don't want to pay a lawyer to do it.

urgh

[debee]

Oh, there is another point I forgot to make. If a trust is a beneficiary and the only beneficiaries are individuals (i.e., there are no charitable organizations listed as beneficiaries), the IRA can be stretched out based on the life expectancy of the oldest beneficiary, even without the conduit provisions. So, if the beneficiaries are all individuals and close in age, the conduit trust may not be worth the trouble.

Also, a clarrification. If the individuals are beneficiaries of the IRA, the IRA would have to be divided after your death in order for each beneficiary to use his/her own life expectancy. If the IRA is not divided, the distributions would be based on the life expectancy of the oldest beneficiary.

The first link I provided explains the issues well.

Thanks, LITR. I had read widely on what a Conduit Trust can/can't do so I'm fairly certain that's the way I want to go. I also plan to establish a Living Trust (for other assets) but I won't name that trust as beneficiary for my IRAs.

The most recent info (that I would deem as reliable) that I've read advises against naming the "Debee BKForum Living Trust" as a beneficiary (& then spell out the details within the trust) because many recent rulings have established that the IRS won't allow a trustee to 'stretch' the distributions unless the trust is a Conduit.

I understand what makes a conduit trust so named, and have read the provisions in Private Letter Ruling 200537044 and I understand the five points necessary to qualify a trust as a "see through" trust, but the problem is I can't draft one. Is there some place where trust documents go to die? I would happily dig one up.

I've read that the IRA beneficiary designation should read something like this:

IRA Conduit Trust under Debee BkForum Trust FBO Child Elder 50%
IRA Conduit Trust under Debee BkForum Trust FBO Child Younger 50%

I'm happy to say that I can do this part. It's the actual trust that's driving me into the snake pit, errr, I mean lawyer's office.

[LadyInTheRed]

The attorneys I work with include the conduit trust language in clients' revocable trusts. That's what the provisions in the links I gave you are designed for. The language creates a separate trust for each beneficiary that is separate from the main trust and will come into existence upon the Trustor's death for the sole purpose of receiving distributions from the IRA. They then advise the client to have the IRA beneficiary designation be something like "The Trustee of the ___________ Trust to be administered pursuant to Article [whatever article has the conduit trust provisions] of said trust."

[debee]

The attorneys I work with include the conduit trust language in clients' revocable trusts. That's what the provisions in the links I gave you are designed for. The language creates a separate trust for each beneficiary that is separate from the main trust and will come into existence upon the Trustor's death for the sole purpose of receiving distributions from the IRA. They then advise the client to have the IRA beneficiary designation be something like "The Trustee of the ___________ Trust to be administered pursuant to Article [whatever article has the conduit trust provisions] of said trust."

Yeah, that's what the beneficiary designations in my post spell out too - conduit trust as subtrust of living trust. I guess every lawyer has their own preference for wording. I found some profoundly simple sample paragraphs for establishing a subtrust, but if there was a problem with any of them, I wouldn't know. Of course this fact only gets worse with increasing levels of legalspeak. I think I'm beat and ready to admit that it's too important and there's too much money involved for me to hack it up. Also, some of the samples available online are old and don't take into account recent IRS rulings and that might not matter, but it might, and I don't know enough to know which.

I was hoping to find a quick, sure resource that I could use to draft something up so if I die next week, my kids are covered.

I've read some convincing arguments in favor of stand-alone IRA Trusts so I'm thinking maybe I should just pay an attorney for a Stand-alone IRA Trust, and do the rest - the Living Trust, etc - myself.

I don't know. I'm exhausted at this point. I've been up late reading, reading, reading for a few days now and I'm sooooo sick of it. Must go watch TV and eat chocolate.