Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

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Small Law Survivor
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Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Fri Sep 21, 2018 10:03 am

I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.

MichCPA
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by MichCPA » Fri Sep 21, 2018 10:12 am

I got the same advice. The way it was explained to me is that you cannot put an IRA in trust while you are alive. If you make a trust a beneficiary of an IRA, there is an accelerated withdrawal schedule (5 years?). This could shoot out distributions in a less than fully tax optimized way. I admit I didn't do much extra digging on that.

clydewolf
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by clydewolf » Fri Sep 21, 2018 10:15 am

Read your beneficiary agreement with your IRA custodian. Ira beneficiaries are meant to be individuals. Often when there is a trust involved, the entire IRA is distributed and taxed at the time the IRA owner dies. The ability for any "stretch" of the IRA is lost.

jackal
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by jackal » Fri Sep 21, 2018 10:18 am

That’s interesting. My understanding was that a customized solo 401k can be a trust account. Is that inaccurate or are iras treated differently from 401ks?

yohac
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by yohac » Fri Sep 21, 2018 10:19 am

You cannot put an IRA in a trust while you are living. There's no real advantage to that anyway because IRAs are pay-on-death and already don't go through probate. There may be reasons to name the trust as beneficiary, but as mentioned there can be significant tax disadvantages if not structured carefully.

retiringwhen
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by retiringwhen » Fri Sep 21, 2018 10:22 am

Small Law Survivor wrote:
Fri Sep 21, 2018 10:03 am
I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.
What would be the purpose for putting it in an revocable trust? Iras can easily be handled out of probate so don’t need that protection. Just put proper beneficiary designations on the accounts.

JBTX
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by JBTX » Fri Sep 21, 2018 10:23 am

Small Law Survivor wrote:
Fri Sep 21, 2018 10:03 am
I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.
Smarter people than I will hopefully answer, but typically you don't want to put IRA's/401ks in a standard revocable living trust, because the beneficiary will lose the ability to spread withdrawal over his or her lifetime, and will have to liquidate over 5 years.

You can get around this by setting up an IRA trust - there are a couple of different types (conduit, accumulation). They are designed to maintain the beneficiary life time RMDs.

Typically, you would make your spouse primary beneficiary, and the IRA trust secondary beneficiary.

ThisTimeItsDifferent
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by ThisTimeItsDifferent » Fri Sep 21, 2018 11:06 am

JBTX wrote:
Fri Sep 21, 2018 10:23 am
Small Law Survivor wrote:
Fri Sep 21, 2018 10:03 am
I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.
Smarter people than I will hopefully answer, but typically you don't want to put IRA's/401ks in a standard revocable living trust, because the beneficiary will lose the ability to spread withdrawal over his or her lifetime, and will have to liquidate over 5 years.

You can get around this by setting up an IRA trust - there are a couple of different types (conduit, accumulation). They are designed to maintain the beneficiary life time RMDs.

Typically, you would make your spouse primary beneficiary, and the IRA trust secondary beneficiary.
Natalie Choate and Ed Slott write about the requirements for a trust to allow the trust beneficiary to stretch the inherited IRA RMDs over the beneficiary's (ies') lifetime(s), rather than within 5 years. The trust must be legal under state law, irrevocable, have identifiable persons as beneficiaries, and meet certain notification requirements. It uses the oldest beneficiary AND contingent beneficiary's age to calculate the RMD, at least if it is an accumulation trust.

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GerryL
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by GerryL » Fri Sep 21, 2018 11:08 am

Perhaps the OP can explain what s/he would hope to accomplish by putting a tIRA into a trust.

JBTX
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by JBTX » Fri Sep 21, 2018 11:18 am

ThisTimeItsDifferent wrote:
Fri Sep 21, 2018 11:06 am
JBTX wrote:
Fri Sep 21, 2018 10:23 am
Small Law Survivor wrote:
Fri Sep 21, 2018 10:03 am
I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.
Smarter people than I will hopefully answer, but typically you don't want to put IRA's/401ks in a standard revocable living trust, because the beneficiary will lose the ability to spread withdrawal over his or her lifetime, and will have to liquidate over 5 years.

You can get around this by setting up an IRA trust - there are a couple of different types (conduit, accumulation). They are designed to maintain the beneficiary life time RMDs.

Typically, you would make your spouse primary beneficiary, and the IRA trust secondary beneficiary.
Natalie Choate and Ed Slott write about the requirements for a trust to allow the trust beneficiary to stretch the inherited IRA RMDs over the beneficiary's (ies') lifetime(s), rather than within 5 years. The trust must be legal under state law, irrevocable, have identifiable persons as beneficiaries, and meet certain notification requirements. It uses the oldest beneficiary AND contingent beneficiary's age to calculate the RMD, at least if it is an accumulation trust.
https://www.thebalance.com/ira-trust-a- ... ra-3505399

I think it can be revocable as long as you are alive. It probably becomes irrevocable after your death.

If you hold significant assets in one or more individual retirement accounts, you might want to consider setting up a special type of revocable living trust that's specifically designed to act as the beneficiary of your IRAs after you die. This type of trust is referred to by a few different names, including an IRA Trust, an IRA Living Trust, an IRA Inheritor's Trust, an IRA Stretch Trust, an IRA Inheritance Trust, or a Standalone Retirement Trust.

MarkNYC
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by MarkNYC » Fri Sep 21, 2018 11:24 am

It sounds like the op is asking about transferring the IRA into the revocable trust while he is alive. In other words, making the revocable trust the owner of the IRA, not the beneficiary of the IRA. That's a legal question, but I doubt it would be allowed.

DA200
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by DA200 » Fri Sep 21, 2018 11:41 am

GerryL wrote:
Fri Sep 21, 2018 11:08 am
Perhaps the OP can explain what s/he would hope to accomplish by putting a tIRA into a trust.
Not the OP.
In my case and many other families with young children, there is a need to name the trust as a beneficiary of the IRA, 401k, 403b, 457b, etc. I certainly don't want my only child (minor) to have full access to a couple million dollars in tax deferred accounts until they are much older. I also don't want the withdrawals to be forced in a 5 yr period.
Thus, I would like to understand what should be done to assure the beneficiary life time RMDs can be taken.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by straws46 » Fri Sep 21, 2018 12:18 pm

Second marriage late in life. I want my IRA to support my spouse to the extent necessary with the remainder going to my children rather than her nieces and nephews. My IRA is title in my individual name because it must be (hence the name INDIVIDUAL Retirement Account), but my trust is the beneficiary in order to accomplish my wishes regarding inheritance. There are specific provisions required in the trust document with respect to Qualified Retirement Plans and IRAs. It is not a Susie Orman do-it-yourself trust document, but any qualified estate planning lawyer should have no problem with it.

afan
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by afan » Fri Sep 21, 2018 4:40 pm

Write a trust that can be the beneficiary of a retirement account and preserve the ability to stretch distributions over the life of the beneficiary. The trust has to be drafted with this in mind and the typical living trust would not have this language unless you had discussed this with the lawyer at the time.

There are two flavors of these trusts. The simpler but less useful one, a"conduit trust", takes the distributions from the retirement plan and immediately passes them on to the beneficiary. This will preserve the stretch but lose asset protection since the money goes to the beneficiary as soon as it comes out of the retirement plan. It also becomes part of the beneficiary's estate and no terms of the trust control what the beneficiary does with it.

The alternative is a trust that can keep the retirement distributions in trust and pay these out to the beneficiary only as needed.
These trusts are usually called "accumulation trusts" since they permit the trustee to accumulate the distributions. Even some good estates and trusts attorneys are reluctant to use them. Some will not even tell you they exist as another option to conduit trusts.

Natalie Choate has written a book about this and many other aspects of retirement accounts. It is aimed at practicing estates and trusts attorneys. If Smalllawsurvivor is an attorney it might be readable. But you need someone who is expert to draft the trust.

As far as I know you cannot make a revocable trust the owner of an IRA while you are alive and there would be no point in doing so if it were possible.
Last edited by afan on Fri Sep 21, 2018 7:28 pm, edited 1 time in total.
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david9117
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by david9117 » Fri Sep 21, 2018 6:43 pm

I setup a see-through trust which allows IRA put into revocable trust. That preserves the IRA extension over the life time of the beneficiary.

Google "see through trust" and you will get the details.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Dottie57 » Fri Sep 21, 2018 8:07 pm

I think an IRA can be owned/ titled for a trust for an individual. I doubt it could be done for a trust for a couple since by definition the IRA s for a single person.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Spirit Rider » Fri Sep 21, 2018 8:16 pm

david9117 wrote:
Fri Sep 21, 2018 6:43 pm
I setup a see-through trust which allows IRA put into revocable trust. That preserves the IRA extension over the life time of the beneficiary.
No, you did not "put" the IRA into a revocable trust. You named the trust a beneficiary of the IRA. The trust was properly constructed according to the IRS rules for "see-thru" distribution capability.
Dottie57 wrote:
Fri Sep 21, 2018 8:07 pm
I think an IRA can be owned/ titled for a trust for an individual. I doubt it could be done for a trust for a couple since by definition the IRA s for a single person.
A trust can never own a retirement account. It can only be a named beneficiary.

JBTX
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by JBTX » Fri Sep 21, 2018 8:43 pm

DA200 wrote:
Fri Sep 21, 2018 11:41 am
GerryL wrote:
Fri Sep 21, 2018 11:08 am
Perhaps the OP can explain what s/he would hope to accomplish by putting a tIRA into a trust.
Not the OP.
In my case and many other families with young children, there is a need to name the trust as a beneficiary of the IRA, 401k, 403b, 457b, etc. I certainly don't want my only child (minor) to have full access to a couple million dollars in tax deferred accounts until they are much older. I also don't want the withdrawals to be forced in a 5 yr period.
Thus, I would like to understand what should be done to assure the beneficiary life time RMDs can be taken.
Within the trust you can set up an IRA sub trust within the revocable trust - actually one for each child. This is what we have in ours.


https://www.thebalance.com/ira-trust-a- ... ra-3505399

Calygos
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Calygos » Fri Sep 21, 2018 8:50 pm

I'm working with an Estate Attorney now, awaiting the final Will and Trust papers to officially sign, but I just looked at some of the paperwork so far and in a Trust Summary document it says
Generally retirement plans and life insurance policies will not be owned by your trust,
however, it is not uncommon for your trust to be designated as beneficiary of retirement
plans or life insurance policies.

InMyDreams
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by InMyDreams » Fri Sep 21, 2018 10:54 pm

I'm not the OP, but the intent when I named my trust as beneficiary was to have the trust hold the retirement accounts until my parent was deceased. Then distribute everything.

The original estate attorney I consulted said to name the trust. I questioned it, because I thought I had heard that retirement accounts should not name a trust as beneficiary. He said it was fine.

Not even 5 years later, I consult a CFP about retiring. She does her job, looks at the big picture, hears my description of my trust, and says, hmm, let me ask someone about that. Next conversation, she advises me to consult a different attorney.

Next attorney said, no, don't do that. If I recall correctly, he said that because my trust named charities, it would force the dissolution of the retirement accounts within 5 years. I wanted to pass along retirement accounts intact if the parent never needed the funds.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by celia » Sat Sep 22, 2018 12:33 am

Dottie57 wrote:
Fri Sep 21, 2018 8:07 pm
I think an IRA can be owned/ titled for a trust for an individual. I doubt it could be done for a trust for a couple since by definition the IRA s for a single person.
A person can own an IRA and take distributions and RMDs at specified ages. But a trust does not have an age (based on a birthdate), so when would it be able to take distributions and RMDs?

This is part of the reason why an IRA must be originally owned by a person (but a trust could be a beneficiary and use the birthdate of the oldest trust beneficiary).

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FIREchief
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by FIREchief » Sat Sep 22, 2018 1:52 am

Interesting but confused thread. afan's post is correct. Several others are not.

Natalie's book is indeed the ultimate reference. It is understandable by a layman, provided they are willing to make an effort.

OP: as has been suggested, nobody can "put" an IRA into a revocable trust, but a trust can be named as primary beneficiary for a tIRA. If the trust is properly drafted, the trust beneficiary may benefit from both stretch payouts and asset protections. There have been many good threads on this topic here on the forum.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Sat Sep 22, 2018 7:58 am

GerryL wrote:
Fri Sep 21, 2018 11:08 am
Perhaps the OP can explain what s/he would hope to accomplish by putting a tIRA into a trust.
We have a large estate, and half of it is in tIRA and Roth IRA. We have one daughter. She insists she will never marry, and for reasons I don't want to go into here, this could very well prove to be true.

We want to provide for her during her life - allow her to withdraw perhaps 4%/year from the IRAs (or the RMD amount, when that becomes larger), but we want to contribute the balance, upon her death, to various charities. We don't want to have a situation whether she can empty the IRAs while she is alive. We, and my parents, worked hard for this money, and we want it to go to several of our favorite charities in the distant future.

So, the purpose of a trust for the IRAs is to support her during her life (and any children, spouses, if that situation changes), but donate the money to various charities upon her death.

Is this too ambitious, impractical or unrealistic?

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by retiringwhen » Sat Sep 22, 2018 8:16 am

Small Law Survivor wrote:
Sat Sep 22, 2018 7:58 am
GerryL wrote:
Fri Sep 21, 2018 11:08 am
Perhaps the OP can explain what s/he would hope to accomplish by putting a tIRA into a trust.
We have a large estate, and half of it is in tIRA and Roth IRA. We have one daughter. She insists she will never marry, and for reasons I don't want to go into here, this could very well prove to be true.

We want to provide for her during her life - allow her to withdraw perhaps 4%/year from the IRAs (or the RMD amount, when that becomes larger), but we want to contribute the balance, upon her death, to various charities. We don't want to have a situation whether she can empty the IRAs while she is alive. We, and my parents, worked hard for this money, and we want it to go to several of our favorite charities in the distant future.

So, the purpose of a trust for the IRAs is to support her during her life (and any children, spouses, if that situation changes), but donate the money to various charities upon her death.

Is this too ambitious, impractical or unrealistic?
You simply specify a trust be created as a part of your will (or create it now with other funds) and make it the beneficiary of the IRA accounts as mentioned above. this achieves your goals with no muss no fuss. Any estate planner can easily do this. It is pretty standard stuff. There are some aspects of the receiving trust that needs to be setup to insure It gets proper tax and RMD treatment but pretty standard. I am not an expert but making a charity the contingent beneficiary may complicate things a bit.

We have exactly this estate plan sans a contingent charity situation.

In fact you can create the revocable trust now whose terms make it become irrevocable when you are both deceased. With the iras set to be passed to that trust.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Spirit Rider » Sat Sep 22, 2018 8:23 am

Small Law Survivor wrote:
Sat Sep 22, 2018 7:58 am
So, the purpose of a trust for the IRAs is to support her during her life (and any children, spouses, if that situation changes), but donate the money to various charities upon her death.

Is this too ambitious, impractical or unrealistic?
With this last information we now know why the estate lawyer said this was complicated.

As has been previously stated, naming a non-person beneficiary of a revocable trust prevents limetime distributions. The entire IRA proceeds must be distributed within 5 years.

There is a way to create a trust to do what you want. It is called a Charitable Remainder Trust. However, the major downside it that it must be an irrevocable trust.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by JW-Retired » Sat Sep 22, 2018 8:24 am

Small Law Survivor wrote:
Sat Sep 22, 2018 7:58 am
So, the purpose of a trust for the IRAs is to support her during her life (and any children, spouses, if that situation changes), but donate the money to various charities upon her death.

Is this too ambitious, impractical or unrealistic?
I don't know but have you considered the 100% DIY approach? Split your IRA accounts into two (or more) and put different beneficiaries on each account.

IMO, that has to be the lowest cost and least complicated thing.
JW
Retired at Last

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Gill » Sat Sep 22, 2018 8:26 am

Small Law Survivor wrote:
Fri Sep 21, 2018 10:03 am
I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.
My cynical self says that the attorney was discouraging this because she didn’t understand it. Not all attorneys do.
Gill

Small Law Survivor
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Sat Sep 22, 2018 8:40 am

JW-Retired wrote:
Sat Sep 22, 2018 8:24 am
I don't know but have you considered the 100% DIY approach? Split your IRA accounts into two (or more) and put different beneficiaries on each account.

IMO, that has to be the lowest cost and least complicated thing.
JW
I don't understand how you would do this. There is one beneficiary (daughter) until her death, then multiple charities.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Spirit Rider » Sat Sep 22, 2018 8:49 am

Do a projection. Pick a percentage for each.

Then you can periodically adjust the percentages while you are alive.

Small Law Survivor
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Sat Sep 22, 2018 9:41 am

Spirit Rider wrote:
Sat Sep 22, 2018 8:49 am
Do a projection. Pick a percentage for each.

Then you can periodically adjust the percentages while you are alive.
Yes, this is what I had in mind:

Trustees of Reservations - 10%
Charity 2 - 10%
Charity 3 - 20%

and so on ....

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by afan » Sat Sep 22, 2018 9:48 am

The complications arise because of the desire to leave the remaining money to a charity and to get the stretch. Since taking the stretch must be based on the age of the oldest beneficiary, it only works when all of the beneficiaries are people. Having a charity in the mix makes it impossible to do the stretch.

As others have suggested, one could create multiple beneficiaries of the retirement accounts, with the accumulation trust among them. The money that goes into that trust can be stretched but cannot go to charity. Another beneficiary could be a person, who could get a stretch but without the guarantee of any of it going to charity.

If the charity part is important then you need to talk to an attorney who is quite expert in estates and trusts. I am sure this issue comes up for a small number of people and lawyers who know this area could help. Gill is an expert and engaged in this thread so maybe he can elaborate. Bsteiner also sometimes will offer suggestions.

Although the stretch is currently allowed there are recurring proposals to eliminate it. The details don't matter since none have become law. Just keep in mind that designing a plan completely around the stretch could get blown away if they kill off this option

If you have not dealt with estates matters before you need to realize a few things:

This is its own area of specialized practice in law.

Because there is a lot of money at stake for heirs and for goverments-taxes, that is- estates and trusts law gets complicated quickly.

The only people who truly understand it are lawyers who do it full time and have been at it for a while.

Many but certainly not all of them have masters degrees in taxation.

There are a lot of lawyers with nowhere near this level of expertise who are capable of doing simpler estate plans.

Unfortunately, many of these less expert lawyers will tackle situations that are over their heads rather than telling the client they are not qualified to handle the problem.

So step one is to search long and hard for true experts.

Gill and bsteiner have offered suggestions about how to do this. For the client it can be the most challenging part of the process.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Small Law Survivor
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Sat Sep 22, 2018 10:04 am

afan wrote:
Sat Sep 22, 2018 9:48 am
The complications arise because of the desire to leave the remaining money to a charity and to get the stretch. Since taking the stretch must be based on the age of the oldest beneficiary, it only works when all of the beneficiaries are people. Having a charity in the mix makes it impossible to do the stretch.

As others have suggested, one could create multiple beneficiaries of the retirement accounts, with the accumulation trust among them. The money that goes into that trust can be stretched but cannot go to charity. Another beneficiary could be a person, who could get a stretch but without the guarantee of any of it going to charity.

If the charity part is important then you need to talk to an attorney who is quite expert in estates and trusts. I am sure this issue comes up for a small number of people and lawyers who know this area could help. Gill is an expert and engaged in this thread so maybe he can elaborate. Bsteiner also sometimes will offer suggestions.

Although the stretch is currently allowed there are recurring proposals to eliminate it. The details don't matter since none have become law. Just keep in mind that designing a plan completely around the stretch could get blown away if they kill off this option

If you have not dealt with estates matters before you need to realize a few things:

This is its own area of specialized practice in law.

Because there is a lot of money at stake for heirs and for goverments-taxes, that is- estates and trusts law gets complicated quickly.

The only people who truly understand it are lawyers who do it full time and have been at it for a while.

Many but certainly not all of them have masters degrees in taxation.

There are a lot of lawyers with nowhere near this level of expertise who are capable of doing simpler estate plans.

Unfortunately, many of these less expert lawyers will tackle situations that are over their heads rather than telling the client they are not qualified to handle the problem.

So step one is to search long and hard for true experts.

Gill and bsteiner have offered suggestions about how to do this. For the client it can be the most challenging part of the process.
Understood, thank you. I realize that I have been naive - I assumed this was fairly straightforward. :oops:

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by JW-Retired » Sat Sep 22, 2018 10:33 am

Small Law Survivor wrote:
Sat Sep 22, 2018 8:40 am
JW-Retired wrote:
Sat Sep 22, 2018 8:24 am
I don't know but have you considered the 100% DIY approach? Split your IRA accounts into two (or more) and put different beneficiaries on each account.

IMO, that has to be the lowest cost and least complicated thing.
JW
I don't understand how you would do this. There is one beneficiary (daughter) until her death, then multiple charities.
Agree it doesn't work if you must do it in series like you say above. You would need to be OK with picking the daughter/charities portions before your death.

I imagine you would have IRA account 1 with daughter beneficiary and IRA account 2 with Beneficiaries B/C/D.... It should cost next to nothing to set up. You would choose initial amounts and investments for daughter and charities now, but they are your IRAs and you are always free to make investment changes, move money between the accounts, and change beneficiaries as long as you are still alive.

I have contemplated this but haven't done anything. If there is some hitch to it hopefully someone will point it out. Maybe afan has but not sure I follow it. :oops:
JW
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letsgobobby
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by letsgobobby » Sat Sep 22, 2018 12:01 pm

Why can't the IRA be left to trust, with the trust distributing income annually or more at trustee discretion, and daughter being beneficiary of trust and thus eligible for the stretch; upon daughter's death, contingent beneficiaries of trust are charities, which can then distribute balance of IRA immediately?

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by afan » Sat Sep 22, 2018 12:55 pm

Because if there is a non person, like a charity, in the chain of beneficiaries the trust cannot do the stretch.

That may not be the end of the world. With an accumulation trust the money would stay in trust and be paid to the beneficiary according to the terms of the document. This could mean conserving a good amount for charity.

If the assets are substantial another consideration would be state and federal inheritance or estate taxes. Money left directly to a charity would escape these taxes. Leaving money first to a trust with a person as beneficiary or directly to the beneficiary would be taxed. If the amounts are greater than any reasonable estimate of what the beneficiary would consume in their lifetime then it could be more tax efficient to leave some directly to the charity. This would be particularly the case for traditional retirement accounts that would also face income taxes on the required distributions.

I keep mentioning bsteiner and Gill in the hopes they will comment. I suspect this situation is commonly encountered by experienced estates attorneys and trust officers. If the OPs lawyer does not know what to do, just need a more knowledgeable lawyer.
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by letsgobobby » Sat Sep 22, 2018 1:42 pm

Is that true even if only a contingent beneficiary is a non person?

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by FIREchief » Sat Sep 22, 2018 1:50 pm

afan wrote:
Sat Sep 22, 2018 9:48 am
The complications arise because of the desire to leave the remaining money to a charity and to get the stretch. Since taking the stretch must be based on the age of the oldest beneficiary, it only works when all of the beneficiaries are people. Having a charity in the mix makes it impossible to do the stretch.
I believe that this is incorrect. With a conduit trust, the trust will distribute the RMDs each year (i.e. benefit from the stretch), and they are based only upon the age of the primary beneficiary. With an accumulation trust, the ages of all beneficiaries are considered and a charity can not be included. The "cost" of using a conduit trust is that there is no asset protection. (see my signature)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by FIREchief » Sat Sep 22, 2018 1:52 pm

Gill wrote:
Sat Sep 22, 2018 8:26 am
Small Law Survivor wrote:
Fri Sep 21, 2018 10:03 am
I met with an estate planning attorney this week, and mentioned that a significant portion of my assets are in trad and Roth IRAs, and that I'd want them to be included in a revocable trust.

She seemed a bit taken aback by this - she said this is "complicated".

Is that right? Has anyone here experienced complications with putting an IRA into a revocable trust?

Thanks in advance.
My cynical self says that the attorney was discouraging this because she didn’t understand it. Not all attorneys do.
Gill
I believe that you are correct Gill. Ironically, I've seen several revocable trust templates that already include the language for a conduit trust, so this attorney may already be allowing for this without even knowing it. Yes, I've encountered attorneys who don't actually know what their boilerplate trusts include. :oops:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by FIREchief » Sat Sep 22, 2018 1:55 pm

Spirit Rider wrote:
Sat Sep 22, 2018 8:23 am
As has been previously stated, naming a non-person beneficiary of a revocable trust prevents limetime distributions. The entire IRA proceeds must be distributed within 5 years.
This is only true if the qualified trust is an "accumulation trust." A conduit trust can preserve the stretch while still naming a non-person (i.e. a charity) as a successor beneficiary. That said, an accumulation trust is far superior in many respects. (see my signature)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by afan » Sat Sep 22, 2018 3:32 pm

FIREchief wrote:
Sat Sep 22, 2018 1:55 pm


This is only true if the qualified trust is an "accumulation trust." A conduit trust can preserve the stretch while still naming a non-person (i.e. a charity) as a successor beneficiary. That said, an accumulation trust is far superior in many respects. (see my signature)
Good point.

I have been so conditioned to ignore conduit trusts that I may have blinders on. This may be a case where a plan of "RMDs to the human beneficiary for life, remainder to charity" could be a good solution. It recognizes that a long life of the beneficiary may lead little left for the charity. By the time the beneficiary hits 90 a large share of the distributions will have taken place and the annual required distributions will be a large share of the retirement plan balance. If the beneficiary needed more than RMDs then the remainder for the charity would decrease even faster. If the beneficiary has or would also inherit other assets then there might be no need to take more than RMDs from the retirement plan. That would maximize what ultimately goes to charity.

I don't know anything about charitable remainder trusts, but they may address this issue.

A story about lawyers who do estate planning versus lawyers who are expert in estate planning. I have a relative who needed estate planning. Mildly complicated situation by bogleheads standards but straightforward to a true expert. I found a true expert and recommended she consult this person. The relative is very intelligent, very detail oriented and very, very cheap. One of the few people I know who is cheaper than I am. When she heard the hourly rate of the estate planning expert she balked and resolved to find someone with lower fees.

Of course, she found several. Each one of them took a substantial upfront fee, then made it clear they were not up to the job. As best I can follow, she is now abandoning cheaper lawyer #3. She has paid much more than the true expert would have charged and she still does not have her estate planning done.

"Always time to do it over. Never time to do it right."

OP needs to find an expert.

Since there are already several charities identified, one approach might be to approach them, explain the situation and ask for recommendations of attorneys. If they are large charities they will deal with estates and trusts attorneys all the time and may know which ones are experts and which ones are not. Of course, should be asked carefully since no charity wants to get involved in saying something bad about an attorney. But they might be happy to suggest several excellent ones.
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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by bsteiner » Sat Sep 22, 2018 7:01 pm

You can't "put" an IRA into a revocable trust, though an IRA is in effect a revocable trust.

You can name a trust as a beneficiary of an IRA. Even if you have a revocable trust, you wouldn't usually the revocable trust as a beneficiary of an IRA since after your death the revocable trust winds up and distributes its assets to (or to trusts for) its beneficiaries. You would instead name those persons, or trusts for those persons, as the beneficiaries of your IRA.

Most married IRA owners leave their IRAs to the spouse, though occasionally there's a reason not to.

Most IRA owners who have children but don't have a spouse leave their IRAs (and their other assets) to their children in separate trusts for their benefit.

The children's trusts are usually discretionary, meaning that the trustees have discretion to distribute income and principal to or for the benefit of the child and the child's issue, or to accumulate the income.

In the case of an IRA, in order to have a discretionary (accumulation) trust, the stretch is limited to the life expectancy of the oldest beneficiary (such as the oldest child), and you can't have charity as a beneficiary.

We include these provisions routinely in our clients' Wills.

If you want to mandate that the remainder of the trust receiving the IRA goes to charity, you could do a conduit trust. In that case, all of the IRA distributions have to be paid out to the beneficiary each year. That works well in the early years when the required distributions are small. But it results in very large distributions in the later years, until the child reaches his/her life expectancy, when the distributions end. That's usually not what most people want.

Another possibility is a charitable remainder trust (CRT). In a CRT, the beneficiary receives a percentage (at least 5%) of the value of the trust each year. The trust can provide that the percentage is applied to the initial value of the trust (an annuity trust), in which case the payments are fixed. Or it can provide that the percentage is applied to the value of the trust each year (a unitrust), in which case the payment will vary. That reduces flexibility, but allows for the remainder to go to charity.

The more typical use of a CRT is to permit someone to sell an appreciated asset and diversify without a current capital gains tax. It's less common at death since you get a basis step-up for most assets and a stretch for retirement benefits. But occasionally there's a large ordinary income amount (such as nonqualiified deferred compensation) payable at death, and naming a CRT as a beneficiary produces the effect of a stretch. Before the IRA distribution proposed regulations were overhauled in 2001, a CRT was a common workaround for someone who had elected recalculation and didn't have a spouse beneficiary. It will become a common workaround again if the proposal to eliminate the stretch is enacted.

For more on trusts as beneficiaries of retirement benefits, see my article on this subject in the March 2004 issue of BNA Tax Management's Estates, Gifts & Trusts Journal: https://www.kkwc.com/wp-content/uploads ... 132954.pdf.

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by david9117 » Sat Sep 22, 2018 8:09 pm

[quote="Spirit Rider" post_id=4130865 time=1537578986 user_id=717]
[quote=david9117 post_id=4130735 time=1537573434 user_id=4810]
I setup a see-through trust which allows IRA put into revocable trust. That preserves the IRA extension over the life time of the beneficiary.[/quote]
No, you did not "put" the IRA into a revocable trust. You named the trust a beneficiary of the IRA. The trust was properly constructed according to the IRS rules for "see-thru" distribution capability.

Agreed. I did not put the IRA in the trust. IRA beneficiary is the see-thru trust. Need to be careful using terms when describing legal documents :happy

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Sun Sep 23, 2018 8:33 am

I'm the OP - thank you for these responses. I will study this and respond a bit latter if I have questions/comments. Small Law Survivor

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Mon Sep 24, 2018 11:46 am

DA200 wrote:
Fri Sep 21, 2018 11:41 am
GerryL wrote:
Fri Sep 21, 2018 11:08 am
Perhaps the OP can explain what s/he would hope to accomplish by putting a tIRA into a trust.
Not the OP.
In my case and many other families with young children, there is a need to name the trust as a beneficiary of the IRA, 401k, 403b, 457b, etc. I certainly don't want my only child (minor) to have full access to a couple million dollars in tax deferred accounts until they are much older. I also don't want the withdrawals to be forced in a 5 yr period.
Thus, I would like to understand what should be done to assure the beneficiary life time RMDs can be taken.
Precisely

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by Small Law Survivor » Mon Sep 24, 2018 12:05 pm

DA200 wrote:
Not the OP.
In my case and many other families with young children, there is a need to name the trust as a beneficiary of the IRA, 401k, 403b, 457b, etc. I certainly don't want my only child (minor) to have full access to a couple million dollars in tax deferred accounts until they are much older. I also don't want the withdrawals to be forced in a 5 yr period.
Thus, I would like to understand what should be done to assure the beneficiary life time RMDs can be taken.

Precisely.

I had been considering a "conduit" trust (wasn't even aware of "accumulation" trust until now). If our daughter lives to 105, there would be nothing left to charities, true. I can take the "risk".

However, several people in the thread above have stated the "cost" of using a conduit trust is that there is no asset protection. Is this a reference to asset protection for the RMDs, or the remaining corpus of the trust? These comments confused me. Thanks in advance ....

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Re: Estate Planning Attorney Says Putting tIRA in a Revocable Trust is "Complicated" - True?

Post by afan » Mon Sep 24, 2018 3:23 pm

Conduit trust would protect the assets while they are in the retirement plan.
Since the conduit pays out any distributions from the retirement plan to the beneficiary, there is no protection for any amounts distributed from the plan.

If you expect the beneficiary to need and therefore the accumulation trustee pay to them all distributions from the retirement plan, then the accumulation trust will act like a conduit trust.

The accumulation trust advantages arise when there is at least a reasonable chance that it would be better to leave some distributions from the retirement plan in the trust, rather than paying them to the beneficiary. In that case, the assets left in the trust would have asset protection.

The accumulation trust also keeps the money out of the beneficiary's estate.
If our daughter lives to 105, there would be nothing left to charities, true. I can take the "risk".
As long as you realize that the forced payouts over the years will seriously deplete the amounts left to charity if daughter lives a long life, but dies much younger than that age.

Payouts will take place every year and will increase as a fraction of the amount remaining in the retirement plan each year. If you expect your daughter to need the money, at the times the RMDs must be taken, then this does not matter.

If you think she will have financial options that do not require tapping this money, then going the conduit route might result in unnecessarily depleting the amount available to charity. The answer will revolve around your daughters income, other resources and anything else she may inherit from you.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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