IRA Trust Checklist

AuthorSeymour Goldberg
ProfessionSenior partner in the law firm of Goldberg & Goldberg, P.C., in Woodbury, New York
Pages98-123
98 | IRA G   IRS C  I
IRA TRUST CHECKLIST
INTRODUCTORY NOTE
For purposes of this IR A Trust Checkl ist, the trust beneficiar y is a non-
spouse beneficiary. A spouse tru st beneficiary is subject to a different
set of IRA dist ribution rules that are beyond the scope of this manual.
In addition, use a separate tr ust as the beneficiary of an IRA. This
trust is referred to as an “IRA tr ust” throughout the IRA Trust Check-
list. The provisions in a t rust that is to receive IRA dist ributions over an
extended period of time after t he death of the IR A owner are completely
different from the prov ision in a typical “credit shelter trust” th at is used
by most practitioners. The state tr ust laws and the IR A distribution
rules are not consistent with the credit shelter trust laws. Hence, in the
author’s opinion there is a need for a separate trust called an I RA tr ust.
CHECKLIST ITEMS
1. Condition the IRA trust as the beneficiary of the IR A owner’s
IRA account on the su rvival of the trust beneficiary. This is done
on the IRA benef iciary form. See sample beneficiary forms.
2. Cover in the IRA trust document what happens if the trust ben-
eficiary survives t he IRA owner and dies before receiving the
entire required minimum distr ibution in a subsequent year of
death of the trust beneficiary. See item 55.
3. Make sure that provisions in the will or other legal documents
exonerate the IRA(s) from any and all estate tax liabilit y, if pos-
sible. If that is not possible, then special provisions in the IRA
trust are necessary. The reason that it may not be possible takes
place when the IRA owner’s estate has insufficient probate assets
and significa nt nonprobate assets. See items 16 and 17.
Practitioner Tip
In general, if possible, exonerate IRA s and nonprobate deferred
compensation arrangements from the estate tax liabil ity under the
tax apportionment statutes. This is generally done by providing
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IRA Trust Checkli st | 99
in the client’s will that any and all estate taxes be charged against
the IRA ow ner’s residuary estate. Th is, of course, assumes that the
client has sufficient assets in his/her residuar y estate and agrees to
this approach. It can also be exonerated in t he client’s revocable
trust, if applicable.
4. If on the subsequent death of a trust beneficiary a generation-
skipping transfer tax may possibly be triggered, then allocate the
GST exemption to the IR A trust on the federal estate tax retu rn
(Form 706) of the deceased IRA owner.
5. If the tr ust beneficiary is a child and the rema inderman is a grand-
child, then allocate the GST exemption to the deceased IRA t rust
on the IRA ow ner’s Form 706 because a generation-skipping trans-
fer tax may be triggered w ith respect to the IRA trust if the child
should die during the payout period survived by the grandchild.
6. Select a reasonable vesting age for the tr ust beneficiary of the IRA
trust if that makes sense. Otherw ise the IRA trust ca n provide
that the IR A trust is for the lifetime of the tr ust beneficiary, lim-
ited of course to the IRS single life ex pectancy table. For example,
the trust could provide that when the trust benef iciary attains age
40, then the decedent’s IRA vests d irectly in the trust beneficiar y.
7. When the tr ust beneficiary attains the vested t rigger age, then
the decedent’s IRA owner’s account becomes payable directly to
the vested trust benef iciary. The deceased IRA owner’s account
would then be titled as follows: John Smith deceased I RA f/ b/o
Jack Smith. This is accomplished by means of a di rect transfer
to a John Smith deceased IR A for the benefit of Jack Smith.
Jack Smith can then conti nue to use the remaining term-certain
period that the IR A trust used in determining the required min i-
mum distributions. Instead of receiving required minimum dis-
tributions from the trust, Jack Smith now receives the required
minimum d istributions directly from John Smith’s deceased IRA .
In addition, Jack Smith can now accelerate distributions from the
John Smith deceased IR A from time to time.
Practitioner Tip
Jack Smith should immediately select successor beneficiar ies of the
inherited IRA t itled “John Smith deceased IRA f/b/o Jack Smith.”
On Jack’s subsequent death, then Jack’s successor beneficiaries of
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