Creative Wealth Preservation Techniques

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By John P. Dedon, Esquire Odin, Feldman
Pittleman, P.C. 9302 Lee Highway, Suite
1100 Fairfax, Virginia 22031 (703)
218-2131 John.dedon_at_ofplaw.com
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ESTATE PLANNING ANDIRA DISTRIBUTIONS
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Income Tax Advantages v. Estate Planning
Objectives

• IRAs are a large portion of clients balance
  sheet
• Income Tax Advantages
• - Tax Free Rollover for Spouses
• - Tax Free Growth for Children and
  Grandchildren
• v.
• Estate Planning Concerns
• - Spouses Second Marriages and Control
• - Children Spendthrift Issues and Divorce
• Role of Trusts in Estate Planning
• Do Trusts for Estate Planning Preclude IRA Income
  Tax Advantages

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Distribution Options

• Assuming Participant dies before distributions
  begin
• 5-year Default Rule (unless)
• Designated Beneficiary
• Distributions begin during participants
  lifetime
• Generally, participants life expectancy

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A Few Basic Rules

• Designated Beneficiary General Rule
• Must Be An Individual And Must Be Named As IRA
  Beneficiary
• Designated Beneficiary
• Cannot be a charity, ones estate, or a trust
  (with Important Exceptions)
• Multiple Designated Beneficiaries
• Use the life expectancy of the oldest beneficiary
  (unless separate accounts are established)

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Spouse as Designated Beneficiary

• Benefits
• Uses spouses life expectancy
• Distributions begin on the later of
• 12/31 of year after participant died, or
• When participant would have turned 70 ½
• Rollover
• Pitfalls
• Spouse remarries after participants death
• Children from previous marriage

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Children as Designated Beneficiaries

• Benefits
• Create separate shares and use each childs life
  expectancy
• Maximize stretch distributions
• Pitfalls
• Child elects lump sum distribution
• No asset protection

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Trusts Solve Spouse And Children Estate Planning
Concerns

• Benefits
• Estate tax planning
• Grantor has control
• Spendthrift beneficiaries
• Creditor protection
• Blended families

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But Can Trusts Be Designated Beneficiaries

• Best of Estate Planning and Income Tax Planning
  Worlds

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Trust as Designated Beneficiary

• Two types
• Qualifying Trust
• Trust is valid under state law
• Trust is irrevocable or becomes irrevocable upon
  participants death
• Trust beneficiaries are identifiable from trust
  agreement
• Trust agreement or list of beneficiaries given to
  IRA custodian by 10/31 of the year following the
  participants death
• All trust beneficiaries must be individuals whose
  ages can be identified

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Trust as Designated Beneficiary

• Conduit Trust
• Meets all of the requirements of a Qualifying
  Trust
• Requires that all distributions from the IRA to
  the trust be paid out directly to the income
  beneficiary upon receipt by the trustee

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Qualifying Trusts vs. Conduit Trusts

• Qualifying Trusts
• Allows for the accumulation of IRA distributions
  in the trust
• All beneficiaries considered when determining
  life expectancy
• Conduit Trusts
• All IRS distributions must be paid out to the
  income beneficiary or beneficiaries
• Only the income beneficiaries are considered when
  determining life expectancy

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Case Study

• Wife

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Case Study

• Children

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In Summary

• Must name the beneficiary on the IRA beneficiary
  designation form (cannot be done in a Will,
  Trust, etc.)
• If using a trust, then ensure that it meets all
  of the IRS requirements
• Designation of beneficiaries should be
  coordinated with your estate planning
• QA

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