Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

RMD trust rules: Ground rules ............................................................................................308 A. Should you discuss RMDs in the trust instrument.................................................308 B. Benefits and proceeds thereof .................................................................................309 C. Benefits pass from one trust to another ..................................................................309 D. Who tests compliance? ............................................................................................309 What a “see-through trust” is; the five “trust rules” ..........................................................309 Dates for testing trust’s compliance with rules ..................................................................310 Rule 1: Trust must be valid under state law .......................................................................310 Rule 2: Trust must be irrevocable .......................................................................................310 Rule 3: Beneficiaries must be identifiable ..........................................................................311 Rule 4: Documentation requirement ...................................................................................312 Rule 5: All beneficiaries must be individuals.....................................................................314 Payments to estate for expenses, taxes ...............................................................................314 Effect of § 645 election on see-through status ...................................................................315 6.3 RMD R ULES : W HICH T RUST B ENEFICIARIES C OUNT ?...........................................................316 If benefits are allocated to a particular share of the trust ...................................................316 A. Beneficiaries with respect to the trust’s interest in the benefits ...........................316 B. Subtrust named directly as beneficiary of the benefits..........................................317 C. Benefits allocated pursuant to trustee’s discretion ................................................317 D. Instrument mandates allocation; no formula..........................................................317 E. Mandated allocation pursuant to formula...............................................................318 F. Mandatory allocation under state law.....................................................................318 Separate accounts: benefits payable to a trust or estate .....................................................318 A. No separate accounts for ADP purposes ................................................................318 B. Separate accounts for purposes other than ADP....................................................319 C. Drafting to achieve separate accounts under one trust instrument .......................319 Beneficiaries “removed” by Beneficiary Finalization Date ..............................................320 A. Distribution on or before September 30 .................................................................320 B. Qualified disclaimer by September 30 ...................................................................321 C. Other ways to “remove” a trust beneficiary ...........................................................321 Disregarding “mere potential successors” ..........................................................................322 Conduit trust for one beneficiary ........................................................................................322 A. What a conduit trust is.............................................................................................322 B. How a conduit trust is treated under the RMD rules .............................................323 C. Payments for beneficiary’s benefit .........................................................................323 D. Payment of trust expenses .......................................................................................323 E. Drawbacks of the conduit trust ...............................................................................324 F. Conduit trust drafting pointers ................................................................................324 G. Conduit trusts for successive beneficiaries ............................................................325 Conduit trust for multiple beneficiaries ..............................................................................325 Accumulation trusts: Introduction.......................................................................................326 Accumulation trust: O/R-2-NLP .........................................................................................327 Accumulation trust: “Circle” trust ......................................................................................328