Life and Death Planning for Retirement Benefits

Chapter 6: Leaving Retirement Benefits in Trust

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Yes: The trust qualifies as a grantor trust with respect to the individual beneficiary. See ¶ 6.3.10 regarding whether it qualifies as a see-through trust. No: Go to Question 8. 8. Must the trust terminate immediately, and be distributed outright to one of the individual trust beneficiaries, if all other individuals who are beneficiaries of the trust die while there is still money in the trust? Yes: This trust qualifies as a see-through trust because it is a “circle” or “last man standing” trust. See ¶ 6.3.09 , ¶ 6.4.05 (B). No: Go to Question 9. 9. We have determined that the trust does not qualify as a see-through trust either as a conduit, 100 percent grantor, or circle (last man standing) trust. The final step is to test the trust beneficiaries to see whether the trust qualifies as an “O/R-2-NLP” trust, and if so who the oldest (countable) beneficiary is. See ¶ 6.3.08 . To answer Question 9, make a list of all beneficiaries of the trust who are or may be entitled to the benefits, in the order in which they are entitled. Go all the way down the chain of beneficiaries and potential future beneficiaries and contingent and even wipeout beneficiaries as far as you can go, UNTIL you come to a beneficiary who (or which) is entitled to immediate outright distribution of the benefits upon the death of a prior beneficiary. That “unlimited” beneficiary (to use the IRS’s term) is the last beneficiary you have to “count.” If every beneficiary on your list is an individual, the trust qualifies as see-through trust, and the ADP is the life expectancy of the oldest individual on your list. If the list includes a nonindividual, go to Answer A. PART III: ANSWERS The “answers” to the quiz are found in different places. In some cases, when you answer a particular question in a particular way, the answer is given to you right then and there. In other cases, you are referred to another section of this book (because the answer is not necessarily clear). Finally, in some cases you are told to “Go to Answer A” (or B, C, or D). Here are Answers A, B, C, and D: Answer A: This trust does not qualify as a see-through trust under the IRS’s minimum distribution trust regulations. For the effect of “flunking,” see ¶ 6.2.01 . If the participant is still alive and qualification would be desirable, consider having the participant amend his trust so it qualifies. If the participant is deceased, consider disclaimers, reformation, and other “cleanup strategies” at ¶ 4.4–¶ 4.5. Answer B: This trust has not complied with the documentation requirement ( ¶ 6.2.08 ). If the participant is still alive, or he is dead but the filing deadline has not yet passed, comply with the requirement then answer Question 3 “yes” and proceed with the rest of the quiz. If the participant is dead and the filing deadline has passed, go to Answer A. Answer C: This trust qualifies as a see-through trust for a single individual beneficiary (the “conduit beneficiary”) within the meaning of Reg. § 1.401(a)(9)-5 , A-7(c)(3), Example 2.