Creative Wealth Preservation Techniques

							  By: John P. Dedon, Esquire
Odin, Feldman & Pittleman, P.C.
9302 Lee Highway, Suite 1100
    Fairfax, Virginia 22031
        (703) 218-2131
   John.dedon@ofplaw.com
ESTATE PLANNING AND
 IRA DISTRIBUTIONS




                      1
Income Tax Advantages v. Estate
     Planning Objectives
   IRA’s are a large portion of clients’ balance
    sheet
   Income Tax Advantages
      - Tax Free Rollover for Spouses
      - Tax Free Growth for Children and
        Grandchildren
                           v.
    Estate Planning Concerns
      - Spouses: Second Marriages and Control
      - Children: Spendthrift Issues and Divorce
   Role of Trusts in Estate Planning
   Do Trusts for Estate Planning Preclude IRA
    Income Tax Advantages
                                                    2
         Distribution Options
   Assuming Participant dies before
    distributions begin*
    – 5-year Default Rule (unless)
    – “Designated Beneficiary”



* Distributions begin during participant’s lifetime
    – Generally, participant’s life expectancy




                                                      3
          A Few Basic Rules
   Designated Beneficiary: General Rule
    Must Be An Individual And Must Be Named As IRA
    Beneficiary
   Designated Beneficiary
    – Cannot be a charity, one’s estate, or a trust (with
      Important Exceptions)
   Multiple Designated Beneficiaries
    – Use the life expectancy of the oldest beneficiary
      (unless separate accounts are established)

                                                            4
Spouse as Designated Beneficiary
   Benefits
    – Uses spouse’s life expectancy
        Distributions begin on the later of:

          – 12/31 of year after participant died, or
          – When participant would have turned 70 ½
    – Rollover
   Pitfalls
    – Spouse remarries after participant’s death
    – Children from previous marriage


                                                       5
         Children as Designated
              Beneficiaries
   Benefits
    – Create separate shares and use each child’s life
      expectancy
    – Maximize stretch distributions
   Pitfalls
    – Child elects lump sum distribution
    – No asset protection



                                                         6
        Trusts Solve Spouse And
        Children Estate Planning
                Concerns
   Benefits
    –   Estate tax planning
    –   Grantor has control
    –   Spendthrift beneficiaries
    –   Creditor protection
    –   Blended families


                                    7
    But Can Trusts Be Designated
            Beneficiaries

   Best of Estate Planning and Income Tax
    Planning Worlds




                                             8
Trust as Designated Beneficiary
Two types:
 “Qualifying Trust”
  – Trust is valid under state law
  – Trust is irrevocable or becomes irrevocable upon
    participant’s death
  – Trust beneficiaries are identifiable from trust
    agreement
  – Trust agreement or list of beneficiaries given to IRA
    custodian by 10/31 of the year following the
    participant’s death
  – All trust beneficiaries must be individuals whose ages
    can be identified

                                                             9
Trust as Designated Beneficiary

   “Conduit Trust”
    – Meets all of the requirements of a Qualifying
      Trust
    – Requires that all distributions from the IRA to
      the trust be paid out directly to the income
      beneficiary upon receipt by the trustee




                                                        10
          Qualifying Trusts vs.
            Conduit Trusts
   Qualifying Trusts
    – Allows for the accumulation of IRA distributions in the
      trust
    – All beneficiaries considered when determining life
      expectancy
   Conduit Trusts
    – All IRS distributions must be paid out to the income
      beneficiary or beneficiaries
    – Only the income beneficiaries are considered when
      determining life expectancy
                                                                11
           Case Study
   Wife




                        12
               Case Study
   Children




                            13
             In Summary
   Must name the beneficiary on the IRA
    beneficiary designation form (cannot be done
    in a Will, Trust, etc.)
   If using a trust, then ensure that it meets all
    of the IRS requirements
   Designation of beneficiaries should be
    coordinated with your estate planning

 Q&A

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