I set up a trust one year ago to take effect at my death. My husband would receive a set amount each month then, at his death, any remaining amount would be held for my 2 grandchildren (now 13 & 14) to begin distribution at the younger one turning 30 and go for 10 years. The estate is fairly equal amounts of traditional IRA, Roth IRA, and (mostly) post-tax funds in Vanguard. I recently read something in the Clark Howard newsletter about the SECURE act and how it affects IRA inheritance and distribution. I don’t think my trust wishes adhere to these rules when it comes to my grandchildren if my husband and I both die before they turn 30. It seems the distribution clock would start on them once they are no longer minors. Did these rules just change? Is this something a trust attorney would have or should have known last year in October? Can someone point me to a good resource that is readable so I can better be prepared to talk to the attorney? The problems I am trying to solve with a trust are these: 1) my husband has only a small amount of social security income on his own and no ability to manage money left directly to him and 2) minor grandchildren I want to leave any remaining amount after his death but I cannot trust their parents.
Having a trust be the beneficiary of an IRA complicates matters.
Thank you. I will read this fully. I don’t know how to get around the issue of having IRAs that I don’t want to leave to my husband or my grandchildren directly if I don’t use a trust.
You could withdraw all the money in the IRAs while you’re still living and invest the money – what’s left of it after taxes – in your post-tax funds that are in the trust.
That would be substantial income taxes and medicare premiums. I’m been moving money from the traditional IRA to the Roth IRA over 4 years so far but it is costing me dearly in taxes and increased medicare premiums. But I will look further into that to see what is involved.
If, ten years after the death of the IRA owner, the trust is still the beneficiary of the IRA, wouldn’t the SECURE act just require the trust to take the proceeds, pay the tax, and act in the interests of the final beneficiaries?
I don’t know yet. I hope to see the attorney in November but I want to be as well read about it as possible before I go. If the trust were required to actually distribute the money to the beneficiaries in 10 years after my death, my grandchildren could still be in their early 20s or my husband could get the money in a chunk then my grandchildren would get nothing. I don’t want him to get the money in a chunk but monthly instead. He cannot handle finances. He can’t even use an ATM card.
This part of this document is what I must understand. " RMD payout rules are different than the distribution rules spelled out in the trust. Even if an IRA must payout under the 5-year rule to a trust/IRA beneficiary, it does not mean the IRA assets will be end up in the hands of the trust beneficiaries within the same time frame. The terms of the trust will decide when distributions to trust beneficiaries will apply. Therefore, the trust may end up paying tax because of the RMD rule but still retain the assets because of the trust language." As the end of the article states, leaving an IRA to a trust might not be the most tax efficient but might be the only way to accomplish one’s goals for heirs.
The trust will be the beneficiary of the IRA and the trustee will be responsible for dealing with the govt red tape. The govt has no say as to what happens to the proceeds after legal disbursal and has no business getting between the trustee and the trustors.
It’s important to choose a competent trustee for your trust.
The trustee is Vanguard if the balance is adequate at that time and Schwab if not.
For IRA beneficiaries, you can name any individual(s) (or organization) you want to have your IRA assets. On your death those individuals (or organizations) will receive their share of your IRA assets as you indicate for your IRA beneficiaries. Talk with your IRA custodian.
An irrevocable trust pays tax at a much higher rate than an individual. The dollar thresholds rise quickly, example: How Are Revocable and Irrevocable Trusts Taxed?
If you want your beneficiaries to receive the IRA assets on a schedule you control then you need the trust.
Wow, those really are high tax rates! I see no other way than a trust despite the higher taxes.
Ask your attorney about a QTIP trust. It may provide a way to get around the tax problem. Depending on your situation, an AB trust might do what you want.
A good estate atty makes all the difference.
Thank you so much. I wish I knew if I have a really good estate attorney or not.
If you have any family members, friends, or friends of friends who have close contacts with lawyers it may be time to ask for a referral. Same with docs.
That doesn’t really work. I’m a lawyer, and I can’t tell who is good and who is not, unless it’s my own practice area. This past week, I just called local attorneys cold about an issue I needed help with because I couldn’t even get a local recommendation. If someone asks me who they should call, all I can do is tell them who I know who practices in that area.
We have two attys in our extended family, and one in my social sphere. Of those, two are tax specialists and one is an estate specialist. I guess the the reasons I feel comfortable with recommendations from those folks is because they were able to refer from first-hand experience with a specific person, in two instances where I needed help. One practiced with the individual they referred, one had their estate planning done by them. I’ve bad luck with lawyers I selected blindly on prior a occasion.
Most docs I know have been around a while and they can do an excellent job referring excellent medical specialists and getting us into clinics and services that are difficult to do otherwise.
I have a close friend who is a retired lawyer from another state and he said he can’t refer here after some bad experiences. I am shooting in the dark with selecting an estate attorney. I already hired one who wrote up a trust. He looked that over for me and said it looked pretty standard but he was not an estate attorney. But now with this new knowledge about the SECURE act, I feel that I am starting over.
I will read about both of these, QTIP and AB trust.