Life and Death Planning for Retirement Benefits

Table of Contents

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Accumulation trust: 100 percent grantor trust....................................................................329 Powers of appointment ........................................................................................................330 Combining two types of qualifying trusts ..........................................................................331 A. Conduit trust and 678 grantor trust .........................................................................331 B. Conduit distributions must begin at participant’s death ........................................332 C. “Switch” trusts .........................................................................................................332 6.4 E STATE P LANNING WITH THE RMD T RUST R ULES .................................................................332 Boilerplate provisions for trusts named as beneficiary......................................................332 Advance rulings on see-through trust status.......................................................................333 Should you use a separate trust for retirement benefits? ...................................................334 Planning choices: Trust for disabled beneficiary ...............................................................334 Planning choices: Trusts for minors....................................................................................336 Planning choices: Trust for spouse .....................................................................................339 Generation-skipping and “perpetual” trusts .......................................................................342 “Younger heirs at law” as “wipeout” beneficiary ..............................................................344 6.5 T RUST I NCOME T AXES : DNI M EETS IRD ...............................................................................344 Income tax on retirement benefits paid to a trust ...............................................................344 Trust passes out taxable income as part of “DNI” .............................................................345 Trust must authorize the distribution ..................................................................................347 Trusts and the IRD deduction ..............................................................................................347 IRD and the separate share rule...........................................................................................348 IRD, separate shares, and discretionary funding ................................................................349 Income tax effect of transferring plan.................................................................................350 Funding pecuniary bequest with right-to-receive IRD ......................................................351 6.6 S EE -T HROUGH T RUST T ESTER Q UIZ .......................................................................................352 7.1 T HREE “W HYS ”: R EASONS TO L EAVE B ENEFITS TO C HARITY ...............................................357 What practitioners must know.............................................................................................357 Reasons to leave retirement benefits to charity ..................................................................358 Charitable pledges (and other debts)...................................................................................360 7.2 S EVEN “H OWS ”: W AYS TO L EAVE B ENEFITS TO C HARITY ...................................................360 Name charity as sole plan beneficiary ................................................................................360 Leave benefits to charity, others, in fractional shares........................................................361 Leave pecuniary gift to charity, residue to individuals ......................................................364 Formula bequest in beneficiary designation .......................................................................366 Leave benefits to charity through a trust ............................................................................366 Leave benefits to charity through an estate ........................................................................367 Disclaimer-activated gift......................................................................................................368 7.3 RMD S AND C HARITABLE G IFTS U NDER T RUSTS ....................................................................369 Trust with charitable and human beneficiaries...................................................................369 If charitable gift occurs at the participant’s death ..............................................................370 If charitable gift occurs later................................................................................................371 CHAPTER 7: CHARITABLE GIVING ........................................................................................357