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IRAS AND TRUSTS David B. McKinney

IRAS AND TRUSTS David B. McKinney. IRAs. SCOPE. ALL IRAS EXCEPT ROTHS . MANY QUALIFIED DC PLANS. IRAs. PLAN TERMS CAN REDUCE YOUR OPTIONS. DC PLANS – REAL CONCERN. “BIG BOX” PROVIDERS. IRA TAX BASICS. INCOME – ALWAYS TAXED WHEN DISTRIBUTED. TAXED WHEN ASSIGNED .

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IRAS AND TRUSTS David B. McKinney

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  1. IRAS AND TRUSTSDavid B. McKinney

  2. IRAs • SCOPE. • ALL IRAS EXCEPT ROTHS. • MANY QUALIFIED DC PLANS.

  3. IRAs • PLAN TERMS CAN REDUCE YOUR OPTIONS. • DC PLANS – REAL CONCERN. • “BIG BOX” PROVIDERS.

  4. IRA TAX BASICS • INCOME – ALWAYS TAXED WHEN DISTRIBUTED. • TAXED WHEN ASSIGNED. • DON’T ASSIGN OWNERSHIPTO A TRUST OR FLP!

  5. IRA TAX BASICS • ESTATE TAX: • NO STEPUP. • WITHDRAW: TWO TAXES! • SELL STEPPED-UP ASSETS TO PAY.

  6. IRA TAX BASICS • HORROR STORY: • $1,000,000 IRA. AT DEATH: • ( 400,000) ESTATE TAX @40% • ( 240,000) INCOME TAX @40% • $ 360,000 NET TO FAMILY

  7. IRA TAX BASICS • OKLAHOMA MAY EXEMPT SOME DISTRIBUTIONS FROM STATE INCOME TAX.

  8. IRA TAX PLANNING • BEST SOURCE OF AFTER-DEATH CHARITABLE BEQUESTS: • NO ESTATE OR INCOME TAX.

  9. IRA TAX PLANNING • INSTALLMENTS: DEFER INCOME TAX. • RMDS.

  10. IRA TAX PLANNING • “LIFE EXPECTANCY”: • 65: ABOUT 88. • MARRIED, BOTH 65: ABOUT 92. • AGE 90 RULE.

  11. IRA TAX PLANNING • PLANNING FOR DEATH: • Pay: 1 Yr., or 5 Yrs. or RMD. • OLDEST RMD FOR ALL. • SEPARATE ACCOUNTS. • NO RECALCULATION.

  12. IRA TAX PLANNING • BENEFICIARY CAN ELECT: • INSTALLMENTS. • NOT IN 401(k)/DC? BUT ROLLOVER … • IMMEDIATE PAYMENT.

  13. IRA TAX PLANNING • BENEFICIARY CAN INVEST. • MULTIPLE BENEFICIARIES.

  14. TRUST AS BENEFICIARY • WHY WOULD YOU DO IT?

  15. The trust must be a valid trust under state law; • The trust must be irrevocable or become irrevocable upon the IRA owner’s death; • The trust must have identifiable beneficiaries who are to receive the interest in the IRA; and • The trust document (or a certified list of all beneficiaries, including contingent and remainder beneficiaries, and a description of conditions on their entitlement to the interest in the IRA) must be provided to the plan administrator. IRA TAX PLANNING • VALID, IRREVOCABLE, TRUST. • HUMAN BEINGS AS BENEFICIARIES. • IDENTIFIABLE UNDER ALL POSSIBLE SCENARIOS. • THE ADMINISTRATOR HAS A COPY OF THE TRUST OR LIST OF ALL BENEFICIARIES & CONDITIONS TO ENTITLEMENT.

  16. IRA CLAUSE FOR TRUSTS • HANDOUT. • TRUSTEE CAN ALLOCATE TO CHARITIES OR HUMANS. • PLRRIGHTS. • “RESIGN.” • EDUCATION.

  17. IRA TAX PLANNING • 1099 GOES TO THE TRUSTEE?? • CHARITIES! • POWERS OF APPOINTMENT DISQUALIFY. • REQUIREMENTS FOR SPOUSES? • LOCATION OF PROOF – NOTICE TO ADMINISTRATOR? • “BIG BOX” PROVIDERS?

  18. PROBLEMS IN TRUSTS • INSOLVENT TRUST OR BENEFICIARIES. • SHORT-TERM TRUST WITH INSTALLMENTS. • TRUSTEE SOPHISTICATION. • INVESTMENT AUTHORITY. • OLDEST RMD FOR ALL. • FAMILY DISPUTES.

  19. SOLUTIONS: • PLR 201241017: • SEPARATE THE IRA INTO ACCOUNTS. • TRUSTEE-TO-TRUSTEE IRA TRANSFERS • EACH IRA IS “INHERITED.” • RMD: OLDEST BENEFICIARY.

  20. SEGREGATED TRUST • [DISCUSSION]

  21. SOLUTIONS: • CAN THE TRUSTEE DISCLAIM AND PASS TO INDIVIDUALS? • NEED CONSENTS. • ATTRIBUTED TO THE BENEFICIARY? • REVIEW THE IRA’S DEFAULT BENEFICIARIES.

  22. SOLUTIONS: • DISTRIBUTE IMMEDIATELY AND PAY THE TAXES. • THE DEFERRAL IS NOT WORTH MUCH!

  23. LOCK-IN IRAS • CONCEPT. • NEED: FLEXIBLE TRUSTEE. • LOCAL TRUSTEES …

  24. LOCK-IN IRAS - REASONS • BLENDED FAMILY. • SPENDTHRIFT. • AGE GAP. • UNSOPHISTICATED TRUSTEE.

  25. LOCK-IN IRAS • INVESTMENT DIRECTION. • CREDITORS – DECEDENT OR BENEFICIARIES. • SHAKY MARRIAGES – BENEFICIARIES.

  26. LOCK-IN IRAS • TRUSTS WITH CHARITIES OR POAs. • MEDICAID.

  27. LOCK-IN IRAS • FLEXIBILITY: YOU CAN DO ANYTHING THAT YOU COULD DO WITH A TRUST.

  28. LOCK-IN IRAs • DISCLAIMERS. • QTIP. • BYPASS, CREDIT SHELTER, GST TERMS.

  29. LOCK-IN IRAs • EXTRA DISTRIBUTIONS. • HEMS OR OTHER STANDARDS.

  30. LOCK-IN IRAS • YOU ALSO CAN: • SEPARATE ACCOUNTS & RMDS. • SEPARATE INVESTMENTS. • PRE-SET THE INSTALLMENT METHOD.

  31. LOCK-IN IRAS CURRENT PROJECT: LOCKED-IN IRA WITH MEDICAID SUPPLEMENTAL BENEFIT TRUST TERMS.

  32. LOCK-IN IRAS • AVOID A GENERATION OF INCOME/ESTATE TAXES. • PREVENT SECOND SPOUSE ROLLOVER.

  33. LOCK-IN IRAS • AVOID DISTRIBUTION TO THE DECEDENT’S CREDITORS.

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