Separate Share Rule Considerations in Structuring IRA Trusts

Ensuring Beneficial "Stretch" Treatment for Beneficiaries of IRA See-Through Trusts Through Separate Share Application

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Tuesday, August 29, 2017

Recorded event now available

or call 1-800-926-7926
Program Materials

This CLE/CPE webinar will provide estate planning counsel with a thorough and practical guide to the separate share rule requirements and calculations as they apply to IRA beneficiary trusts. The panel will detail the specific requirements for designating separate shares in trust documents, outline various IRS pronouncements on applying the rule, and offer specific drafting language and structuring tips to ensure that an IRA beneficiary trust conforms with the separate share requirements.

Description

One of the most valuable estate planning tools for both protecting and maximizing the value of IRA assets is the use of a trust as an IRA beneficiary. Properly structured, an IRA beneficiary trust allows extended tax deferral benefits by “stretching out” the payments over the beneficiary’s life expectancy, so long as the trust document follows the “separate share” rules of IRC 663(c).

The separate share rule requires that, for purposes of calculating distributable net income (DNI), any trust that has more than one beneficiary and “substantially separate and independent shares of different beneficiaries in the trust shall be treated as separate trusts.”

In the context of an IRA beneficiary trust, the separate share rules also allows an IRA to factor in the ages of each beneficiary of the IRA in making required minimum distributions (RMDs), thus achieving “stretch” treatment.

However, failure to properly structure the IRA trust can lead to unfavorable consequences. The trust document must properly identify the separate shares per beneficiary, or the trust is required to make the RMDs based on the age of the life expectancy of the oldest beneficiary and will lose the advantage of prolonged tax deferral from stretching out payments.

Tax advisers and estate planners structuring IRA trusts must have a deep and practical understanding of the separate share rules to avoid negative tax consequences. Listen as our experienced panel provides detailed guidance, including sample language, to help you master the intricacies of the separate share rules in drafting IRA beneficiary trusts.

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Outline

  1. Structure of IRA beneficiary trusts
  2. Separate share rule terms for DNI calculation
  3. RMD payout terms absent separate share rule application
  4. Structuring trusts to ensure beneficiaries receive stretch treatment under separate share rule
  5. Ensuring beneficiary designations allow for separate share rule treatment

Benefits

The panel will review these and other key issues:

  • Specific structuring rules and beneficiary designations that must be followed to ensure that beneficiaries get “stretch” treatment of RMDs
  • Factors for evaluating beneficiaries of an IRA trust
  • Provisions that must be included in trust language for a trust to qualify for look-through treatment
  • Impact of a charity or non-individual beneficiary on application of the separate share rules
  • Disclaimer provisions to achieve maximum stretch treatment

Faculty

Kristen M. Lynch
Kristen M. Lynch

Partner
Lubell Rosen

Ms. Lynch represents clients in matters related to probates, guardianships, estate planning, asset protection,...  |  Read More

Neda Barkhordar, Esq.
Neda Barkhordar, Esq.

Givner & Kaye

Ms. Barkhordar advises clients on both traditoinal estate planning and complex estate tax planning involving...  |  Read More

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