font size=2Postmortem wealth transfers to IRA beneficiaries continues to present estate planning challenges.span style=mso-spacerun: yesnbsp; /spanAlthough perhaps not the final word on the matter, the IRS now prevents postmortem trust reformation designed to allow trustees to treat them as designated beneficiary trusts.span style=mso-spacerun: yesnbsp; /spanThe relevant ruling is PLR 201021038.
/fontfont size=2 face=arial,helvetica,sans-serifThe broadness of the limited power of appointment was perhaps the most critical flaw in the subject trust.span style=mso-spacerun: yesnbsp; /spanIt was too broad to be able to determine the correct measuring life.span style=mso-spacerun: yesnbsp; /spanThere were other flaws as well, most notably the trust’s naming of charities as potential beneficiaries.
/fontfont size=2font face=arial,helvetica,sans-serifThe tax consequences of this ruling are devastating to any similarly-flawed trust:span style=mso-spacerun: yesnbsp; /spanBeneficiaries cannot stretch out required withdrawals over the lifespan of the oldest beneficiary but would presumably have to withdraw all money from the plan within just a few years.
/fontfont face=arial,helvetica,sans-serifUnless a tax court modifies this ruling – and until it does – the bar is very high indeed for those who draft trusts for the purpose of receiving postmortem IRA distributions.span style=mso-spacerun: yesnbsp; /spanIn short, get it right the first time!span style=mso-spacerun: yesnbsp; /spanI would read and reread /font/fonta href=http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000401----000-.html target=_blankfont size=2 face=arial,helvetica,sans-serifsection 401(a)(9)/font/afont size=2 face=arial,helvetica,sans-serif to ensure the trust conforms to the section’s standards precisely.span style=mso-spacerun: yesnbsp; /spanGoing forward, you may also wish to give grantors an opportunity to review the terms of their trusts to ensure they conform with the changing law on this subject.span style=mso-spacerun: yesnbsp; /spanA brief look every three-to-five years is appropriate, although factors like ill health /font |
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