IRAS AND TRUSTS David B. McKinney

1. IRAS AND TRUSTSDavid B. McKinney

2. IRAs • SCOPE. • ALL IRAS EXCEPT ROTHS. • MANY QUALIFIED DC PLANS.

3. IRAs • PLAN TERMS CAN REDUCE YOUR OPTIONS. • DC PLANS – REAL CONCERN. • “BIG BOX” PROVIDERS.

4. IRA TAX BASICS • INCOME – ALWAYS TAXED WHEN DISTRIBUTED. • TAXED WHEN ASSIGNED. • DON’T ASSIGN OWNERSHIPTO A TRUST OR FLP!

5. IRA TAX BASICS • ESTATE TAX: • NO STEPUP. • WITHDRAW: TWO TAXES! • SELL STEPPED-UP ASSETS TO PAY.

6. IRA TAX BASICS • HORROR STORY: • $1,000,000 IRA. AT DEATH: • ( 400,000) ESTATE TAX @40% • ( 240,000) INCOME TAX @40% • $ 360,000 NET TO FAMILY

7. IRA TAX BASICS • OKLAHOMA MAY EXEMPT SOME DISTRIBUTIONS FROM STATE INCOME TAX.

8. IRA TAX PLANNING • BEST SOURCE OF AFTER-DEATH CHARITABLE BEQUESTS: • NO ESTATE OR INCOME TAX.

9. IRA TAX PLANNING • INSTALLMENTS: DEFER INCOME TAX. • RMDS.

10. IRA TAX PLANNING • “LIFE EXPECTANCY”: • 65: ABOUT 88. • MARRIED, BOTH 65: ABOUT 92. • AGE 90 RULE.

11. IRA TAX PLANNING • PLANNING FOR DEATH: • Pay: 1 Yr., or 5 Yrs. or RMD. • OLDEST RMD FOR ALL. • SEPARATE ACCOUNTS. • NO RECALCULATION.

12. IRA TAX PLANNING • BENEFICIARY CAN ELECT: • INSTALLMENTS. • NOT IN 401(k)/DC? BUT ROLLOVER … • IMMEDIATE PAYMENT.

13. IRA TAX PLANNING • BENEFICIARY CAN INVEST. • MULTIPLE BENEFICIARIES.

14. TRUST AS BENEFICIARY • WHY WOULD YOU DO IT?

15. The trust must be a valid trust under state law; • The trust must be irrevocable or become irrevocable upon the IRA owner’s death; • The trust must have identifiable beneficiaries who are to receive the interest in the IRA; and • The trust document (or a certified list of all beneficiaries, including contingent and remainder beneficiaries, and a description of conditions on their entitlement to the interest in the IRA) must be provided to the plan administrator. IRA TAX PLANNING • VALID, IRREVOCABLE, TRUST. • HUMAN BEINGS AS BENEFICIARIES. • IDENTIFIABLE UNDER ALL POSSIBLE SCENARIOS. • THE ADMINISTRATOR HAS A COPY OF THE TRUST OR LIST OF ALL BENEFICIARIES & CONDITIONS TO ENTITLEMENT.

16. IRA CLAUSE FOR TRUSTS • HANDOUT. • TRUSTEE CAN ALLOCATE TO CHARITIES OR HUMANS. • PLRRIGHTS. • “RESIGN.” • EDUCATION.

17. IRA TAX PLANNING • 1099 GOES TO THE TRUSTEE?? • CHARITIES! • POWERS OF APPOINTMENT DISQUALIFY. • REQUIREMENTS FOR SPOUSES? • LOCATION OF PROOF – NOTICE TO ADMINISTRATOR? • “BIG BOX” PROVIDERS?

18. PROBLEMS IN TRUSTS • INSOLVENT TRUST OR BENEFICIARIES. • SHORT-TERM TRUST WITH INSTALLMENTS. • TRUSTEE SOPHISTICATION. • INVESTMENT AUTHORITY. • OLDEST RMD FOR ALL. • FAMILY DISPUTES.

19. SOLUTIONS: • PLR 201241017: • SEPARATE THE IRA INTO ACCOUNTS. • TRUSTEE-TO-TRUSTEE IRA TRANSFERS • EACH IRA IS “INHERITED.” • RMD: OLDEST BENEFICIARY.

20. SEGREGATED TRUST • [DISCUSSION]

21. SOLUTIONS: • CAN THE TRUSTEE DISCLAIM AND PASS TO INDIVIDUALS? • NEED CONSENTS. • ATTRIBUTED TO THE BENEFICIARY? • REVIEW THE IRA’S DEFAULT BENEFICIARIES.

22. SOLUTIONS: • DISTRIBUTE IMMEDIATELY AND PAY THE TAXES. • THE DEFERRAL IS NOT WORTH MUCH!

23. LOCK-IN IRAS • CONCEPT. • NEED: FLEXIBLE TRUSTEE. • LOCAL TRUSTEES …

24. LOCK-IN IRAS - REASONS • BLENDED FAMILY. • SPENDTHRIFT. • AGE GAP. • UNSOPHISTICATED TRUSTEE.

25. LOCK-IN IRAS • INVESTMENT DIRECTION. • CREDITORS – DECEDENT OR BENEFICIARIES. • SHAKY MARRIAGES – BENEFICIARIES.

26. LOCK-IN IRAS • TRUSTS WITH CHARITIES OR POAs. • MEDICAID.

27. LOCK-IN IRAS • FLEXIBILITY: YOU CAN DO ANYTHING THAT YOU COULD DO WITH A TRUST.

28. LOCK-IN IRAs • DISCLAIMERS. • QTIP. • BYPASS, CREDIT SHELTER, GST TERMS.

29. LOCK-IN IRAs • EXTRA DISTRIBUTIONS. • HEMS OR OTHER STANDARDS.

30. LOCK-IN IRAS • YOU ALSO CAN: • SEPARATE ACCOUNTS & RMDS. • SEPARATE INVESTMENTS. • PRE-SET THE INSTALLMENT METHOD.

31. LOCK-IN IRAS CURRENT PROJECT: LOCKED-IN IRA WITH MEDICAID SUPPLEMENTAL BENEFIT TRUST TERMS.

32. LOCK-IN IRAS • AVOID A GENERATION OF INCOME/ESTATE TAXES. • PREVENT SECOND SPOUSE ROLLOVER.

33. LOCK-IN IRAS • AVOID DISTRIBUTION TO THE DECEDENT’S CREDITORS.