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IRAS AND TRUSTS David B. McKinney PowerPoint Presentation
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IRAS AND TRUSTS David B. McKinney. IRAs. SCOPE. ALL IRAS EXCEPT ROTHS . MANY QUALIFIED DC PLANS. IRAs. PLAN TERMS CAN REDUCE YOUR OPTIONS. DC PLANS – REAL CONCERN. “BIG BOX” PROVIDERS. IRA TAX BASICS. INCOME – ALWAYS TAXED WHEN DISTRIBUTED. TAXED WHEN ASSIGNED .

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Presentation Transcript
slide2
IRAs
  • SCOPE.
    • ALL IRAS EXCEPT ROTHS.
    • MANY QUALIFIED DC PLANS.
slide3
IRAs
  • PLAN TERMS CAN REDUCE YOUR OPTIONS.
    • DC PLANS – REAL CONCERN.
    • “BIG BOX” PROVIDERS.
ira tax basics
IRA TAX BASICS
  • INCOME – ALWAYS TAXED WHEN DISTRIBUTED.
  • TAXED WHEN ASSIGNED.
  • DON’T ASSIGN OWNERSHIPTO A TRUST OR FLP!
ira tax basics1
IRA TAX BASICS
  • ESTATE TAX:
    • NO STEPUP.
    • WITHDRAW: TWO TAXES!
    • SELL STEPPED-UP ASSETS TO PAY.
ira tax basics2
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
ira tax basics3
IRA TAX BASICS
  • OKLAHOMA MAY EXEMPT SOME DISTRIBUTIONS FROM STATE INCOME TAX.
ira tax planning
IRA TAX PLANNING
  • BEST SOURCE OF AFTER-DEATH CHARITABLE BEQUESTS:
    • NO ESTATE OR INCOME TAX.
ira tax planning1
IRA TAX PLANNING
  • INSTALLMENTS: DEFER INCOME TAX.
    • RMDS.
ira tax planning2
IRA TAX PLANNING
  • “LIFE EXPECTANCY”:
    • 65: ABOUT 88.
    • MARRIED, BOTH 65: ABOUT 92.
    • AGE 90 RULE.
ira tax planning3
IRA TAX PLANNING
  • PLANNING FOR DEATH:
    • Pay: 1 Yr., or 5 Yrs. or RMD.
    • OLDEST RMD FOR ALL.
      • SEPARATE ACCOUNTS.
    • NO RECALCULATION.
ira tax planning4
IRA TAX PLANNING
  • BENEFICIARY CAN ELECT:
    • INSTALLMENTS.
      • NOT IN 401(k)/DC? BUT ROLLOVER …
    • IMMEDIATE PAYMENT.
ira tax planning5
IRA TAX PLANNING
  • BENEFICIARY CAN INVEST.
  • MULTIPLE BENEFICIARIES.
trust as beneficiary
TRUST AS BENEFICIARY
  • WHY WOULD YOU DO IT?
ira tax planning6

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.
ira clause for trusts
IRA CLAUSE FOR TRUSTS
  • HANDOUT.
  • TRUSTEE CAN ALLOCATE TO CHARITIES OR HUMANS.
  • PLRRIGHTS.
  • “RESIGN.”
  • EDUCATION.
ira tax planning7
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?
problems in trusts
PROBLEMS IN TRUSTS
  • INSOLVENT TRUST OR BENEFICIARIES.
  • SHORT-TERM TRUST WITH INSTALLMENTS.
  • TRUSTEE SOPHISTICATION.
  • INVESTMENT AUTHORITY.
  • OLDEST RMD FOR ALL.
  • FAMILY DISPUTES.
solutions
SOLUTIONS:
  • PLR 201241017:
    • SEPARATE THE IRA INTO ACCOUNTS.
    • TRUSTEE-TO-TRUSTEE IRA TRANSFERS
    • EACH IRA IS “INHERITED.”
    • RMD: OLDEST BENEFICIARY.
segregated trust
SEGREGATED TRUST
  • [DISCUSSION]
solutions1
SOLUTIONS:
  • CAN THE TRUSTEE DISCLAIM AND PASS TO INDIVIDUALS?
    • NEED CONSENTS.
    • ATTRIBUTED TO THE BENEFICIARY?
    • REVIEW THE IRA’S DEFAULT BENEFICIARIES.
solutions2
SOLUTIONS:
  • DISTRIBUTE IMMEDIATELY AND PAY THE TAXES.
    • THE DEFERRAL IS NOT WORTH MUCH!
lock in iras
LOCK-IN IRAS
  • CONCEPT.
  • NEED: FLEXIBLE TRUSTEE.
    • LOCAL TRUSTEES …
lock in iras reasons
LOCK-IN IRAS - REASONS
  • BLENDED FAMILY.
  • SPENDTHRIFT.
  • AGE GAP.
  • UNSOPHISTICATED TRUSTEE.
lock in iras1
LOCK-IN IRAS
  • INVESTMENT DIRECTION.
  • CREDITORS – DECEDENT OR BENEFICIARIES.
  • SHAKY MARRIAGES – BENEFICIARIES.
lock in iras2
LOCK-IN IRAS
  • TRUSTS WITH CHARITIES OR POAs.
  • MEDICAID.
lock in iras3
LOCK-IN IRAS
  • FLEXIBILITY: YOU CAN DO ANYTHING THAT YOU COULD DO WITH A TRUST.
lock in iras4
LOCK-IN IRAs
  • DISCLAIMERS.
  • QTIP.
  • BYPASS, CREDIT SHELTER, GST TERMS.
lock in iras5
LOCK-IN IRAs
  • EXTRA DISTRIBUTIONS.
  • HEMS OR OTHER STANDARDS.
lock in iras6
LOCK-IN IRAS
  • YOU ALSO CAN:
    • SEPARATE ACCOUNTS & RMDS.
    • SEPARATE INVESTMENTS.
    • PRE-SET THE INSTALLMENT METHOD.
lock in iras7
LOCK-IN IRAS

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

lock in iras8
LOCK-IN IRAS
  • AVOID A GENERATION OF INCOME/ESTATE TAXES.
  • PREVENT SECOND SPOUSE ROLLOVER.
lock in iras9
LOCK-IN IRAS
  • AVOID DISTRIBUTION TO THE DECEDENT’S CREDITORS.