Help Me With Sign Oklahoma Banking Presentation

Help me with industry sign banking oklahoma presentation secure

so uh tall grass estate planning is a law firm that's uh based in tulsa uh but we operate in stillwater in oklahoma city and uh and also in seattle washington so up in seattle we're tall grass northwest and we've got some clients up in the pacific northwest as well sometimes people stop and wonder why in the world would we pick those two locations and it's my wife's fault her family is from the washington area so we split our time between oklahoma and washington and um and we've got clients and attorneys in in both locations um so we are focused exclusively on uh primarily trust and asset protection planning but we also do you know wills and powers of attorney and probates and guardianships and some elder law the elder law we do is exclusively related to eligibility for medicaid and va benefits so we're not doing um elder abuse and some crisis planning but we are doing a lot of uh kind of look ahead planning for aiden attendance benefits and for medicaid purposes so um if anybody has questions about the firm or how we practice i'm always happy to um to interact offline um at any time so feel free to reach out and ask if you'd like um so without any further ado unless there's some more particular questions i can answer up front i'll just launch into the the topic for the day so i want to double check again that everybody is seeing the slides uh say stand-alone stand-alone retirement trust drafting considerations after secure is that visible to everyone okay so um what i wanted to talk about primarily today were these four things um first of all what is a standalone retirement trust um i can't see everybody's um picture i know there's a lot more people logged on than who i can see at the moment but if if you have actually drafted or done some standalone retirement trust planning can you give me a high sign on that i want to get a sense of whether or not i'm talking people who have or have not done this okay so some of you are going to be familiar with what a standalone retirement trust is and if you have some color commentary to add to what i described please feel free um we'll also talk about the secure act which is uh has been recently passed we'll talk more about what it does and how it affects retirement trust planning i won't get into the details of how it affects you know employment plans for 401ks and iras we'll talk more about how it affects transfer of benefit upon death of the planned contributor we'll talk about some drafting errors to avoid in a standalone retirement trust now that the secure act has passed and then um the last thing we're going to talk about may make no sense to some of you right now but it will hopefully if i do my job right in the next hour how do we avoid this new 10-year rule and and kind of recapture the stretch for an ira benefit so first thing we're going to talk about is just what a standalone retirement trust is um a standalone retirement trust may be revocable or irrevocable but what really defines it is that it is created specifically and only for the purpose of receiving tax-deferred retirement plans at the planned contributor's death or at some time in the future maybe after the spouse's death but this is essentially an empty bucket during the grantor's lifetime it doesn't own anything until the grantor has passed away and the at a time uh designated with the uh the custodian of the funds that the trust should become the beneficiary um that that's all now what it's for is simple enough but how to draft it effectively is kind of where it becomes complicated um so if the standalone retirement trust is drafted properly then it allows the grantor to do some three really significant things and these are the three points that we we um we talk through in our council with our clients it can it can do a lot but these are the these are the highlights so the first thing that a standalone retirement trust can do if drafted effectively is minimize any annual income tax liabilities rather than absorbing those all in a single year it can stretch them out over over a number of years so there's not any one year where all of that becomes regular income to the beneficiaries and they take a big tax hit the second thing that it can do and this is related to the first is because it's keeping a certain amount of principle invested in the retirement plan we're we're continuing to take advantage of tax deferred growth um so the twin tax concerns that grantors have with this kind of trust is number one they don't want to create a massive income tax liability for the beneficiaries in any one year and they also don't want to cut off that potential for future tax deferred growth so we make those two things work together inside of the srt if we've drafted it effectively and then the third thing that we do is actually provide some ongoing asset protection for the beneficiaries from their own financial bad choices or bad luck i'll talk in more detail about um about what that issue is in just a moment oftentimes um individual clients and sometimes even attorneys if they're not familiar with the the retirement trust are surprised to find out that inherited iras are exposed to the beneficiary's financial bad luck but they are in fact and we'll talk about why that is and how we can avoid so why not just name a revocable living trust as the beneficiary of an ira um let's kind of get that out of the way to beginning now first of all there are times where that's perfectly appropriate um we have plenty of clients who name their uh revocable living trust or the sub trusts in a revocable living trust as the beneficiary contingent beneficiary of a retirement plan and sometimes that's perfectly appropriate but why might a client not want to do that why may why might they create this additional um stand-alone retirement trust well first of all they might have very different goals for uh their iras and 401ks so tax deferred accounts versus their real estate brokerage business interests etc they might have a very different way that they want those things to be administered or benefit their family the children spouse down the road um especially if it's a blended family scenario and they've got a very different asset mix and how they've invested in their retirement plans versus uh the the the non-tax deferred assets so different goals is one reason we might create this the standalone retirement trust the second thing is that the rlt the way that the revocable trust is drafted may not provide sufficient ongoing asset protection it may be that the revocable trust assets you know primary residence and some life insurance death benefits or whatever you might want them to become available to the beneficiaries at certain ages or under certain conditions that remove asset protection as one of the benefits of using the revocable trust whereas if there are significant if there's been significant lifetime investment in a tax-deferred account you may want to stretch out that asset protection benefit over and above what the revocable trust does so differentiating the asset protection um provision can be important um the uh the revocable living trust may include what are called non-designated beneficiaries and we'll talk more about what this means in just a moment but the point is that the revocable trust may have something like maybe a 10 tithe to their church at death or a charitable distribution um or a class of beneficiaries that don't have what the irs would consider a life expectancy and that would completely destroy the ability to stretch the ira benefit out over any amount of time beyond five years so if the revocable trust has a charitable distribution or non-designated beneficiaries naming the stand-alone retirement trust uh as the beneficiary of tax deduction will become really um for that purpose um so the other thing we need to think about is the potential for uh ongoing estate planning works you're going to draft a retirement for somebody now um or at some point in the future uh along with your revocable trust if the revocable trust is all you've drafted and it has special provisions for retirement assets and then 10 years down the road that client hires and another attorney to do an amendment or a restatement uh and either the client or the attorney doesn't do a careful reading of your trust they may destroy all the provisions that you've created for the retirement plan so protecting the provisions for retirement assets from future restatements is also a reason to create this separate bucket for the standalone retirement trust and you you may simply wish to create an irrevocable trust from the very beginning for retirement plan purposes and not a revocable trust and that would be another reason to differentiate and create the the separate trust so um why are we worried about asset protection uh that's going to be a running theme here and there's a good reason why uh why we need to think about it so for the plan contributor at the point where your client is still alive their iras their 401ks depending on the type of asset they have is already protected from their own um you know bankruptcy civil lawsuits creditors etc um and some clients believe mistakenly that that same asset protection carries forward to their beneficiaries once the kids inherit the ira they get the same asset protection from their own creditors bankruptcies etc that's not the case um some of you may be familiar with the 2014 supreme court case clark v ramaker that made it very clear in a unanimous decision that inherited iras are not exempt from creditor claims uh under federal bankruptcy exemptions so um you know kiddo receives dad's million dollar ira from his time at conoco phillips and then and then goes bankrupt thinking that the inherited ira is going to be protected that's not the case if we want protection for inherited tax deferred accounts we need to create special provisions for that purpose but naming the kids as individual beneficiaries is not going to provide that benefit so the srt can solve that problem at least for a while after the secure act and we'll talk about we'll talk about that so i want to pause for just a second and hop off of my screen share and open my chat window are there any um any questions uh so far about uh what the srp is why you would create it versus just naming the revocable trust as the beneficiary before we jump into the secure act portion so somebody asked does clark apply to roll over spouses so the spouse gets the benefits uh uh under erisa and state law for asset protection but downstream beneficiaries may not um can everybody see me or are you seeing are you still seeing my my uh my screen okay so um yeah we don't necessarily have to worry about uh asset protection for spouse oh hi brandy um they're gonna they're gonna get those benefits but it's those contingent beneficiaries children etc that lose those asset protection benefits if we don't make a specific provision for them any other questions about uh what the srt is before we jump in okay um so let me go back to this you just got a question riley on can you have a joint srt for spouses um no so uh an srt is an individual trust not a joint trust you can make the trust the primary beneficiary of an ira and make the spouse the primary beneficiary of the srt but there's not a you can't under right now we can't create a joint srt that receives both the husband and wife's iras or 401ks in the same way that an individual has to have their own ira you can't have a joint ira with your your spouse you also can't have a joint a standalone retirement trust it's an individual instrument not a joint instrument so let me skip forward here a little bit um now so what is the secure act secure stands for setting every community up for retirement enhancement um and it's an act that was passed uh it was signed into law last december it's been talked about for more than a year um and a lot of us uh were thinking we were going to be free of this thing last summer um it got a lot of attention uh last uh you know late winter and early spring so quarters one and two of last year uh we really thought this was going to pass and then in the summer ted cruz of all people halted this uh its progress because it didn't have sufficient provisions for how these monies could be used for for homeschooling education um and we really thought it was going to be just stuck in in congress for a while and we were going to be free from this thing it got some more attention late in the year and passed so it was signed into law last december and it became effective as of january 1st of this year it's a little hard to find if you go looking for the secure act you're gonna have to go to the further consolidated appropriations act of 2020 section o so it's not the most intuitive thing to go to go get to but if you want to read the entire act that's where you would go to find it there's a lot that it does that we're not going to talk about what i do want to point out here in this presentation are a handful of key provisions that are going to affect trust drafting and estate planning so probably the the the provision that's created the most uh controversy and is going to give you the the biggest headache is this new 10-year rule so prior to secure you may or may not know that uh depending on who your beneficiaries were of an ira or a 401k and how they were designated they could take their own life expectancy to calculate their required minimum distributions every year and stretch the benefits of their inherited ira over their lifetime um now the rmds were going to go into effect pretty quickly the irs was certainly going to start collecting some income taxes but they were going to be able to spread those out over the beneficiary's lifetime now under the secure act the new general rule with very few exceptions is that all in inherited iras 401ks tax deferred accounts have got to be completely distributed within 10 years of the planned contributors death so this no longer gives us the lifetime rule for the beneficiaries we now need to distribute within 10 years and for a lot of clients who have saved aggressively in uh iras and 401ks this is pretty disappointing this means that there's going to be a pretty big income tax consequence within a relatively short period of time after their death now the the act though does create a new class of beneficiaries called eligible designated beneficiaries there was already provision for what are called designated beneficiaries and non-designated beneficiaries and we'll talk about that uh distinction in just a moment the point here is that there are certain edbs eligible designated beneficiaries that may still use their own life expectancy to calculate rmds they don't have the 10-year rule does not necessarily apply to them and those classes those those edbs are a spouse so it's still that if you pass away and name your spouse as your primary beneficiary they can use their life expectancy to calculate rmds they're not subject to the 10-year rule minor children and minors here is going to be defined by state law so depending on the state's utma rules it may be 18 or 21 but miners that inherits while they're minors the 10-year rule does not start until they reach the age of majority um so uh somebody inherits when they're eight years old their life expectancy is what controls until they're 18 and then the 10-year rule applies and they have a you know a total distribution by age 28 or 31 depending on the state um another class of edbs are disabled and chronically ill and then the the last class of edbs are those beneficiaries that are less than 10 years younger than the planned contributor right so what this does is it really excludes most people's healthy children uh if they name them as their contingent beneficiaries um they are going to be subject to the 10-year rule um some other key provisions that are are about the edb's the eligible designated beneficiaries um number one their the edbs are are determined at the planned contributors death not beforehand we don't know who these people are until the plan contributor dies we can guess this is kind of like some of you may have gone through the um maybe the intellectual exercise with your clients when you're doing some planning about identifying who the r heirs are and of course the punch line there is we have no idea who your heirs are until you die we don't know who they are right now we know who they might be but um they cannot be determined until you passed away because they are they're a class of people that only exist when you pass away similarly for edb's you can't know at the time that you're filling out a beneficiary designation whether or not you have an edb um their their class their status is only determined at your death and the other thing that the secure affects about edvs is that their status doesn't change once it's been determined so if you have a child who inherits and they are relatively healthy and neurotypical and they don't fall into one of the edb categories and five years later they develop a disability or a chronic illness they do not get to change their status they are still subject to the 10-year rule they don't get to go from 10-year rule to life expectancy if they were determined to be an edb at your death then they will always be an edb if they were not an edb at your death then they will not become an edb in the future does that make sense now some of this because this is such a new act like everything else that the irs is part of their code or congress here we're going to need some regulations to sort out the details uh so with some of these provisions i'm taking a kind of a conservative approach to interpreting the the act and we'll see where this ends up and how the irs handles some um some exemptions but this is the best guess right now under this under the the clear reading of the law is status doesn't change once it's been determined now um what about when the edb passes away are there any rules that affect how things function then and uh the answer is yes so um if the uh upon the edb's death so let's say you have somebody who is disabled and inherits uh your ira um they get to use their own life expectancy to determine their requirement distributions if they die their beneficiary is subject to the 10-year rule no matter what it doesn't even matter if their beneficiary would have also been an eligible designated beneficiary so if your disabled child has their own disabled child by the time it gets past the eligible designated beneficiary the the next taker is going to be subject to the 10-year rule no matter what so we don't have cascading edbs we have one layer of edb's and when they pass away now we're subject to the 10-year rule no matter what um the other thing that the the secure act creates for us is something called the applicable multi-beneficiary trust this is a new category of trust within uh you know thinking about inherited iras so what is an applicable multi-beneficiary trust if you have a revocable trust or a standalone retirement trust that has more than one beneficiary so it's not just a single person but a class of individuals or your three kids or whatever it might be so more than one beneficiary and the beneficiaries are treated as designated beneficiaries we'll talk about what that means in a moment and at least one of them falls into one of the categories for an eligible designated beneficiary now we have an applicable multi-beneficiary trust why does that matter um that that does a couple of things for us under the secure act so before secure if you have if you had a trust that fell in it could have been described as what we now call an applicable multi-beneficiary trust if if your trust the rlt or the srt was named as the the contingent beneficiary of your ira and you wanted each beneficiary to be able to use their own measuring life to determine their rmds that on the beneficiary form for the ira or the 401k you needed to identify each individual subtrust in order to allow that to happen in other words um if i had a trust that named stephanie jackson as a half beneficiary and dan waskin as a half beneficiary and i wanted stephanie and dan to be able to use their own separate measuring lives to calculate their r d's then it's not good enough to just name my revocable trust as the contingent beneficiary i need to name the subtrust for the benefit of dan waska as a 50 beneficiary and the sub trust for the benefit of stephanie jackson as a 50 beneficiary to allow them to do that okay so it was a complicated way to fill out the beneficiary forms if you're going to allow for that stretch after secure if you have an applicable multi-beneficiary trust then the 10-year rule is going to apply to all the designated beneficiaries if any of those beneficiaries are an edb an eligible designated beneficiary you do not need to separately identify their sub trust in order to allow them to get the edb stretch um there's there's two ways that this happens number one if you name your your revocable trust or your standalone retirement trust as a contingent beneficiary and and the trust says at the time of the planned contributors death this has to be divided into separate subtrusts no matter what the proportions is equal or unequal but it's divided at the time of the uh the plane contributors death and one of those beneficiaries is an edb then that edb can use their own life expectancy to calculate their rmds without specifically identifying their subtrust this allows you to maybe all maybe all of your children are are perfectly healthy right now but at the time of your death one of them has become chronically ill or disabled um then then the edb rules are going to apply to them even if we don't specifically identify their their separate subtrust this also applies if your trust says you know i've got my three kids as my beneficiaries of my ira one of them is disabled and um they are the only one that has the right to distributions for their lifetime when they pass away my other children are the contingent or the remainder beneficiaries then that edb is also going to get to use their life expectancy to calculate rmds for their lifetime so we're stretching out the benefit over that one beneficiary's life when they pass away the 10-year rule applies to the remainder beneficiaries so we no longer have to go through this um exercise of naming subtrusts in the beneficiary form you can just identify your applicable multi-beneficiary trust as the as the beneficiary of your ira and we've done the heavy lifting for the edb's does that make sense okay um now did you draft a see-through trust um and and dan we're at 12 30 do we need to stop for code for a second let me give y'all thank you riley let me give the code so the halfway code is 2 4 0 9 2 4 0 9 is the halfway code and again when you fill the format turn it into beverly petri you got to put that code number in there four zero nine which is the halfway code and again you gotta remember to identify this as course number one one two five three nine so the halfway code is 2409. you know it's back to you riley okay um so scott asked when we're talking about minors um are we talking about only minor children of the settler and yes so um the miners in question here are well actually no i should i shouldn't say that um if you have a class of individuals um that are named as the beneficiary like my grandchildren or my nieces and nephews and they are minors then um then they get uh they get to be considered edb so the minors that we're talking about do not have to be the first generation children of the settler or the grand tour the miners could be any designated beneficiary uh that under you know we'll talk about the the treasury regs in just a moment um to clarify you know what who's considered a designated beneficiary but it's not just the minor children of the settler it could be any minor that's named as a beneficiary so let me get back to my screen share here and we'll pick it up with um with see-through trusts so one of the considerations here when drafting um uh a standalone retirement trust or even a revocable trust that becomes a beneficiary of a retirement plan um let's see which of my screens are are you seeing my screen that's got the full slides or just the no stephanie okay let me see if i can fix that real quick thank you so let me try this how about now stephanie is that better you seem okay great so um a see-through trust is kind of a is a key part of how this functions um a see-through trust could mean a few different things but here's the big picture with a see-through trust your trust beneficiaries are treated as if they are planned beneficiaries and that's important if we want to avoid forcing the five-year rule the old five-year rule then we need to have a see-through trust whether it's our revocable trust or a stand-alone retirement trust so what is a see-through trust there are four requirements for a trust to be a see-through trust number one it's just got to be valid under state law number two it's got to be irrevocable when it's created or become irrevocable upon the death of the planned contributor um number three the beneficiaries have to be identifiable uh and and that's that's with reference to treasury reg uh section 1.40189-4 and essentially what this means is that your beneficiaries are individuals or a class of individuals so that would mean for instance uh you know a class of individuals could be my children my grandchildren my brothers and sisters that are then living at the time of my death um all of these are are people that the irs can see and and calculate a life expectancy for okay so that's the key here is that the irs knows how to think about their lifespan if you have um a beneficiary that is not an individual or class of individuals with an identifiable life expectancy you do not have a see-through trust you have a trust that's going to be subject to the five-year rule so that would mean if you named a church or a charity as a beneficiary they are not an identifiable designated beneficiary within the meaning of the treasury regs if you were to say something like let's say i appointed dan as my my successor trustee and i said um dan may distribute this to any beneficiary of his uh his soul and absolute discretion he gets to decide who those beneficiaries are that's not an identifiable life or class of individuals within the meaning of the treasury reg so this would not be considered a see-through trust so if the trust names individuals are a class of individuals you you could fall into the see through trust category otherwise you could not and the last requirement is pretty simple it's that um the the documentation that's described in the treasury reg has got to be provided the plan administrator and that just means you gotta show you know when you pass away that you have already or you make can make available the trust document to the plan administrator as well as the provisions that describe any um any requirements for how and when the entitlement passes to the beneficiaries so if you've met those four requirements you have a see-through trust the trust beneficiaries are treated like their plan beneficia beneficiaries now um there are two though categories of see through trust two different types of trusts with very different um consequences tax consequences especially for the beneficiaries um you could draft what's called a conduit trust and a conduit trust is a trust that says all rmds that the trustee receives have to be distributed to the individual beneficiaries so there's no question there's no discretion rmds go to the beneficiaries now it doesn't have to say that only rmds go to the beneficiaries you could say that your trustee has to distribute rmds plus there's maybe hems standards health education maintenance support the trustee can distribute um discretionary uh for that purpose or uh any other amount of principle maybe five percent of the principal per year can become distributable to the beneficiaries but if it forces rmds to the beneficiaries annually you've got a conduit trust you may also have something though that's called an accumulation trust which authorizes it doesn't require but it authorizes the trustee to accumulate or to hold rmds inside of the trust they don't have to be distributed to the beneficiaries again the one of the common con points of confusion here is that some people think that an accumulation trust is one that requires the trustee to hold rmds and that's not the case if the trust authorizes said that the trust may hold rmds for the beneficiary then you have an accumulation trust not a conduit trust um so how can i make sure that my edbs uh if i have my spouse or a disabled child or a minor child as the beneficiary of a of a salem retirement trust or a um an rlt how can i make sure that they are not subject to the 10-year rule but they still get to avoid you know get to stretch the the benefit over their lifetime well if your if your trust is the primary beneficiary of your retirement plan and your spouse is the primary beneficiary of your trust and it's a conduit trust then there's no question the spouse gets to use his or her life expectancy to calculate rmds that's easy well what if your trust is a q-tip uh what if for any number of reasons there's a uh you know a non-marital trust created at the death of the first spouse it inherits the retirement plan and it has q-tip provisions not conduit but what we typically think of as condo versions well it depends if the q-tip um says to the trustee that you have to distribute the greater of rmds or income then the calc the spouse is going to at least get a forced rmd every year they may get additional money if the income is greater than the rmd then um sorry my wife was sending me a text of something to make sure i clarify i want to make sure i see that um yeah oh thank you laurel we'll talk about that so um if the q-tip says you have to give either the greater of the income or the rmds then the spouse is at least getting their rmds so they're able to use their own life expectancy to to calculate that and then there's some question and again this is me kind of giving my best guess there's some question about whether or not the spouse gets their life expectancy if it's an accumulation trust if the trust authorizes the trustee to hold rmds even if the spouse is the beneficiary then it may very well be that they're subject to the 10-year rule and not able to use their own life expectancy to calculate their rmds now here's the note that laurel my wife and law partner and co-owner of the firm sent me um so one point of confusion early on with the secure act was whether or not the rmd was still an annual uh requirement and the answer is no the rmd is is required only in year 10. um and i'm going to talk about this in a little bit more detail on how to avoid this problem down the road but i still want to go ahead and flag it in case you don't know so under the secure act um an rmd is something that only has to be distributed in year 10. it's not something that gets calculated along the way so if you are a designated beneficiary meaning you don't get to use your life expectancy you're not an eligible designated beneficiary you're just a normal person who receives an inherited ira um your rmd only applies in year 10 not in each year along the way so if you have a trust that that that says to your trustee you have to distribute rmds but you can only distribute rmds there's no other discretionary distributions or withdrawals from the trust then everything is held in trust until year 10 and in year 10 everything is distributed to the beneficiary and it all becomes taxable income in one year and we have a massive income tax hit all at once we'll talk about how to draft around that in just a moment but that's an important note what if we have a child a minor child that's a beneficiary this could be your own child this could be a grandchild niece or nephew or just an acquaintance but if you have a minor child that's named as a beneficiary of a uh of a trust that is inheriting an ira then how do we make sure they also get to use their life expectancy well it's pretty clear that until that child reaches the age of majority they're using their life expectancy um to determine you know how this has to be distributed once they reach the age of majority then the 10-year rule applies um so you you may if you're if you're drafting revocable trusts and you're counseling your clients to think about um you know modify ng the age of majority or minority to to delay an outright distribution for instance at some later date you may inside of your revocable trust say anybody under 25 years old or under 30 years old is going to be considered a minor and everything will be held in trust until then and then there will be an outright distribution at that point you can you can redefine minor status for purposes of non-ira distributions all day long in your revocable trust or even your srt but you cannot use your trust to redefine minors for purposes of the 10-year rule so let's say you have a revocable living trust that says everybody every beneficiary under 30 years old is going to be considered a minor and everything will be held in trust for them until that point then that would apply to your brokerage account and your real estate and other kinds of you know life insurance proceeds etc but the 10-year rule for inherited iras would still kick in when state law says that that person is no longer a minor 18 or 21. so you can't draft around that provision with your rlt or your srt um so you might want to consider whether or not um asset protection by creating an accumulation trust is a is a better way to protect those assets during that 10-year time than creating a conduit trust with discretionary provisions and we'll talk more about that in just a second um so one question here we've talked about the concept of what a standalone retirement trust is and how the secure act affects all of this but one question that that comes back to us pretty frequently sometimes from financial advisors is should you do we have any business naming a trust as a beneficiary of an ira you know what get the trust out of this because it creates more problems and it solves let's just name individuals as beneficiaries of iras and forget trusts because there's too many ways that this could go wrong so should we name a trust as a beneficiary retirement plan and like every other legal answer in the world that matters the answer of course is it depends um so the first thing we need to consider you know as i'm going through this analysis with clients or with financial advisors should we name the trust as a beneficiary we need to think first of all about who are been who our ultimate beneficiaries are does the client want to distribute everything to non-designated beneficiaries does it all go into charity or to a church anyway um do we have only designated beneficiaries do we have any eligible designated beneficiaries do we have a mixture of all of the above uh depending on who the client wants to receive these assets downstream then then naming a trust or creating an srt um you know becomes a we haven't we have a decision tree to apply here it's not it's not as simple yes or no um so we need to think first of all about income tax consequences um if we're using conduit trust provisions so if we have designated beneficiaries with conduit trusts somebody is going to have to pay the income taxes for the growth on this account if we're distributing income to our beneficiaries then they get to use their own tax bracket marginal tax rates to calculate the income taxes under the current law an individual beneficiary would have to make more than five hundred and eighteen thousand dollars a year or a married married filing jointly would be six hundred twenty two thousand dollars a year they would have been making a really high income to to be subject to a 37 percent tax it's not likely in most cases that the income generated from the retirement plan that gets distributed to them is going to put them at that height of a tax bracket so it's going to be much more tax efficient whether you're naming individual beneficiaries or a conduit trust it's going to be tax efficient to name individuals and with conduit trust provisions as the beneficiary of the ira if you have a desire to create an accumulation trust maybe with a special needs beneficiary certain asset some other asset protection concern you've got beneficiaries with substance abuse problems etc gambling addictions you may want to create an accumulation trust that does not require distribution of anything to the beneficiaries all of the trustees discretion including rmds well the thing to keep in mind is that the the trust is now going to have to become the income tax payer they're going to file a 1041 a fiduciary return now to pay the income taxes on the r on the ira and the marginal tax rate for a trust gets to that 37 percent bracket at 12 950 in 2020 so if the if the trust creates or if the inc apartment if the ira creates 13 000 worth of income in a year anything over that's going to be subject to a 37 tax income tax um so one of the things that we have to weigh with clients when we're we're deciding whether or not to name a trust as a beneficiary is what kind of uh beneficiaries do we have are we creating conduit versus accumulation trust provisions and what kind of income tax consequence is that going to create now the client may very well prefer the asset protection afforded by an accumulation trust even though it creates a higher tax consequence than uh the tax efficiency that that's created by the the conduit trust provisions some other considerations here are are you concluding are you including charitable organizations so um a lot of times clients might want to make sure that their church or a charity becomes a beneficiary of an ira because it's it's a very tax efficient strategy um you know the the client has never paid income taxes on this money and if it's distributed uh to a charity then the charity doesn't pay income taxes on it either and that's a really tax efficient way to transfer maximum dollars from your estate or trust to your charitable beneficiary the the potential downside is is if your trust doesn't give your trustee really specific instructions and if the trustee isn't very sophisticated about that they may create a cascading problem for all the other beneficiaries for instance if your trust says ten percent of my my iras go into my church and ninety percent divided among my kids and the trustee waits too long to make that distribution to the church then everybody is subject to a five-year distribution we don't we don't even get the 10-year rule at that point everything's got to come out within five years so what we try to do inside of our trust is say to the degree that any charitable beneficiary is named here they need to to get their distribution before september 30th of the year following the plan contributors death in order to avoid that five-year uh forced rule for everybody so if you're naming a charitable organization that can still be fine but we need to give very clear instructions to the trustee to make that distribution quickly so that all the other beneficiaries are potentially able to stretch that um that benefit out as long as possible do you want to ensure ongoing tax deferred growth so one of the things that that naming the trust is beneficiary can do is force all or some of the principle to remain invested so it continues to grow tax-free if you just name the individual outright as beneficiary then you're avoiding some of the trust drafting complications but you're also potentially cutting off all that potential tax referred growth because beneficiaries are likely to take that money out very very quickly sometimes within the same year they inherit it which which not only creates a massive income tax consequence but also cuts off that that future tax deferred growth potential and then of course under clark v ramacher are we concerned about asset protection so if you've got a client who is uh is in a rocky marriage and potentially going to be going through a divorce is constantly battling creditors and considering filing for bankruptcy is in a high liability industry and maybe getting sued they're a business owner a surgeon a truck driver then their potential future liabilities could could expose the inherited ira to loss and the client may in fact want to want to preserve those assets from their beneficiaries financial bad luck or bad choices and trust is our best as our best tool to do that with if it's properly drafted so these are some of the things we have to weigh when thinking about whether or not to just name the kids as the beneficiary or go ahead and name the trust what type of beneficiaries do we have is a charitable organization a part of the mix do we can do we care about the ongoing tax deferred growth the annual income tax consequences and ongoing asset protection um and some some k some maybe more uh getting into the weeds drafting considerations during um now that secure has passed um can we switch if if the grantor creates a conduit trust provision can the trustee switch to accumulation trust at some point uncertain in the future if the if the grantor becomes incapacitated or passes away can the can the trust give the trustee the ability to toggle between conduit and accumulation provisions maybe the circumstances in the beneficiary's life during when the grantor created the trust are different now that they're incapacitated or passed away well um we're unsure right now how the irs would treat this if if the trust said to the trustee you've got a conduit trust here for the beneficiaries but if any point in the future you want to switch this to accumulation i give you the authority to do that without clarifying a time frame or a reason we're not really sure yet how the irs would treat that would they allow the switch from conduit to accumulation or vice versa we don't know but that's one of these provisions that sometimes shows up in trust and now that secure has passed i'm not sure whether or not that's going to be enforceable we need to wait on some regs to see one thing that we do know uh some of you may have have used or know about the keebler switch right the good old bob keebler has done a lot of heavy lifting for retirement trusts in the last 15 years so in 2005 he was a part of a team that got a plr for allowing the trust protector uh to void conduit trust provisions and switch to accumulation trust provisions and even amend the poa if done within nine months of a planned contributors incapacity or death so we have a time certain and we have the trust protector acting not a trust trustee we have at least a private letter ruling that says that this is a this is an allowable uh tool to use that the trust protector within nine months of a plan contributor's death can switch from conduit to accumulation trust it's a 15 year old plr but there's nothing in the secure act that would contradict that ruling so i think we can still create that power inside of the trust if you do create a a conduit trust have a trust protector in place that has the authority to switch to to uh to toggle over to accumulation provisions and we think that would still be enforceable post secure what about powers of appointment we want to be really careful with this one now and this might also be a really good reason why you might want to split the revocable living trust and the standalone retirement trust uh into two different piles so what happens if you've got a revocable living trust that gives a power of appointment maybe a lifetime or a testamentary power of appointment to a designated beneficiary to name a non-designated beneficiary like a creditor or a charity um if you have a see-through trust and the rlt receives the inherited benefit and it sees that a designated beneficiary has the authority as it has a lifetime power of appointment to name a charity or a church or or or a creditor as their um as an appointee does that force a five-year rule for everybody well it very well may um at the very least it may turn an eligible designated beneficiary into a non-designated beneficiary um so we want to be really careful about this if you have a client who for any number of reasons wants to grant power of appointment to their beneficiaries maybe to preserve a step up or something like that then i would i would especially take this as a good as a good um value proposition to your client to consider drafting a standalone retirement trust to receive the ira benefits because if you want to give that power of appointment over life insurance and cash and brokerage and real estate you may very well not want to grant it over the retirement assets because you don't want to force this uh the five-year rule so if you're granting powers of appointment and a revocable living trust separate uh the the death or the beneficiary of the ira into a stand-alone retirement trust and do not grant those powers of appointment at least not to non-designated beneficiaries because we don't want to force this five-year rule um so something i hinted at a moment ago if um one way or let me back up and say it this way again under the secure act the rmd only applies to year 10 it's no longer an ongoing yearly distribution it's a year 10 distribution and you need to decide and counsel your client and possibly talk to your the the client's accountant or financial advisor as well or plan administrator whether or not you want to have language in the trust that allows the trustee to make discretionary distributions or allows the beneficiary to make withdrawal rights along the way if you don't if you say the only money that can come out to the beneficiary is the rmd then you are forcing everything to stay in trust until year 10 for it to come out all at once and then to take a big income tax hit in that single year so if one of the things you want to do is protect those assets for as long as possible then know that you are creating a tax issue uh as a trade off for for the asset protection if one of your goals is tax efficiency then you want you need to allow for more than just the rmd you need to either give the trustee the ability to make discretionary distributions along the way of a certain percentage of assets or possibly for certain purposes so that the income can be taxed in smaller increments as it's distributed to the beneficiary and that way we're not taking a big tax hit all in year ten but the trade-off there of course is every distribution you make now we have no asset protection over that portion so depending on your clients sensitivities and values and priorities and depending on the the amount of assets you may want to to counsel with your client about this trade-off between asset protection but loss of tax efficiency versus tax efficiency but loss of asset protection um now how do we get beyond the 10-year the new 10-year rule if you've got clients who say you know my big priority is is stretching this out over lifetimes i don't want everything distributed within 10 years whether or not my beneficiaries are eligible designated beneficiaries you know my kids are healthy um they don't they're not disabled or chronically ill they're they're older than 10 years you know younger than me so um i want to i want to get beyond 10 years how do i do that well um i've got three recommendations here and there are more but these are kind of the most common three that i i talk with my clients about and i'd love to hear your thoughts number one you can just name generation beneficiaries in multiple generations so if you want to stretch your your ira out for longer than 10 years name some minors name your kids but also name your grandkids um name some minor nieces and nephews so they at least get their life expectancy while they're minors and the 10-year rule doesn't doesn't come into effect until after they reach age of majority so so the most basic way to get outside of that 10-year rule is to just make sure that you've included some minor beneficiaries um as the beneficiaries of the trust now this doesn't do all the heavy lifting this just kind of puts a band-aid on the problem uh it's just a pause a temporary pause to the 10-year rule the other thing you can do is roth conversions um and i'm careful to tell my clients that i'm not a financial advisor i'm not trying to tell them whether or not they should do a roth conversion before our clients consider doing this we always talk to their financial advisor and plan administrator depending on the amount that they've got invested and what their own income is it may be smarter for the client to absorb the income income tax consequences now and and get rid of this 10-year problem down the road anyway by just converting traditional iras or 401ks to roths during their lifetime the client absorbs the tax hit now and then the inherited uh money is not subject to the 10-year rule because the taxes have already been paid on um so if you've got a client who either they're at a low income tax bracket or their beneficiaries are likely to be at a very high income tax bracket the roth conversion may be something worth considering it it not only is going to lower the tax consequence but it's also going to allow us to get outside of that 10 year rule as well now the more complicated tool but one i think that it's a lot of fun and is a good fit for some clients is uh and i'm just about done i realize we're right at kind of the one hour mark um is using charitable remainder unit trusts so some of you may have drafted cuts in the past for other other purposes i think they work great for stretching out this benefit so what the charitable remainder unit trust allows you to do is name the crut not a srt or rlt but name the crut as the contingent beneficiary of the retirement plan the crut has your kids or grandkids as the beneficiaries during their lifetime and they get to use their life expectancy under the corrupt to calculate their rmds so we're stretching out the the current has to force anywhere from five to fifty percent of the principal in the crutch every year to the named beneficiaries so it's never the entire amount or it doesn't have to be the entire amount it can be a limited amount of principle that goes to them every year they report it on their own income tax return take small hits allow for tax deferred growth but they can they can do that over their entire life's life expectancy the 10-year rule does not apply here and when they passed away everything that remains goes to the charitable dis uh cheryl women officially tax free so if clients have a significant amount invested in tax deferred retirement plans because that's been their big strategy all along because they were investing pre-secure then uh a really good way to stretch that benefit out and make a tax efficient distribution to a charity is to name the crut rather than an srt or revocable trust as the beneficiary of the um of the ira uh so with that i am going to stop my screen share and get back to the chat and maybe we can turn on mics and see if there's any uh any questions worth asking or i would love to hear your contributions as well so let me give the code the end code is 2 1 1 0 2 1 1 zero so you've got the halfway code the encode which is two one one zero and remember the course number is one one two five three nine so after we do the q a here and we finish up you're going to fill the form out that's posted on the discussion page and send it into beverly petry and the materials that riley just worked off of are also on the discussion page they may have been posted as early as last week like last friday but if you look down on the discussion page you'll see these materials if you didn't see them before so yeah riley let's do some q a and see what the folks have got to say for you and if you're going to ask a question uh feel free to take your microphone off i mean turn it on so you can ask the question if you want to do that instead of writing it out either way is fine and there's a question from garrett eller do you want to read that to him you see it riley do you see it i see a couple from garrett one's about remote contingents and one is about um allowing distribution for for a mortgage etc um so uh i guess i'll let me take them both um and then stephanie i see your comment too i'd love to hear your thoughts on that so um so garrett uh can your remote contingent distribution be a non-identifiable beneficiary and it still be valid and not trigger the five-year rule so my understanding is that um if it's a see-through trust the irs is going to look to uh all beneficiaries including contingent or remainder beneficiaries um and they're gonna they're gonna try to find the last beneficiary uh that that doesn't allow them to to calculate any kind of life expectancy if they find one then the five-year rule applies to everyone that's my understanding i would be happy to be proven wrong but the the people that um that that i've uh i've read and listened to on this have said something similar that the risk of course is if your remote contingent beneficiary includes anybody other than an individual or class of individuals with an identifiable life expectancy then you are risking the five-year rule for everybody so again i think this is a this is a great reason to divide between the rlt and the srt if your rlt uh the client wants to use um you know church or charity for uh for ultimate uh you know taker of last resort remote contingent beneficiary then the srt that does not include that potential uh beneficiary is a good way to make sure that we're not even raising this risk of the five-year rule for everybody um again i i want to answer garrett's other question real quick to the best of my ability and then if anybody has a different understanding um i i promise my feelings aren't hurt i would i would love to be corrected on that point um and then garrett also asked under conduit trust option can you direct the trustee to use the rmd for the benefit of the recipient solely to pay for creditor bankruptcy protected bill's assets uh mortgage payments utility et cetera um so my again my understanding is no um if you're if you're requiring the trustee to use that money in some way other than making a distribution directly to the beneficiary and this is not really a conduit trust this is an accumulation trust with with um direction to use um to use the the income for the beneficiary for particular purposes so i don't think so and i think if you if you did direct if you if you positively directed the uh the trustee to make a provision directly for a creditor like a mortgage company bankruptcy etc you're kind of creating the opposite of a spin threat provision you're giving any creditor uh an argument a legal argument for getting in and um and having those assets be exposed uh to to loss and losing the asset protection again that's my understanding i'd be happy to hear some color or some nuance if anybody has a different reading of the law or understanding how that works i'm going to take the silence as a no or a lack of interest um which is both are fine um now stephanie allman um had uh a note we thought minor only referred to the minor of the employee um a child of the employee who has not reached a majority um you you might be right um my my understanding of how minor is defined as an eligible designated beneficiary and secure is anybody any minor beneficiary named as a beneficiary of the trust um it does not have to be um the child of the planned contributor um but i i am i'd like i'd love to to read that uh you know the the citation you mentioned is something that defines designated beneficiaries and i think that's important for calculating the 10-year rule etc um let's see terrell uh stephanie's point appears correct as to erisa plans but may not be true for non-orisa so um yeah there's all there's some there's going to be some nuance here when we're talking about asset protection especially between 401ks and erisa plans versus you know traditional iras and other types of plants so um that that same nuance may apply to stephanie's point thank you terrell for for pointing that out um what other questions uh does anybody want to ask one out loud or we want to just kind of keep going through the chat and seeing what's there it looks like the chat's kind of where they are so yeah that's lighting up so let me just let me just kind of find a few um let's see uh some of the most recent ones um what do attorneys charge for standalone retirement trusts i'll let you guys share that information privately if you'd like um is there a way to use a crummy type strategy to move the money from the retirement trust conduit to an accumulation trust to continue to hold and protect assets i think so i think that's a really interesting um question um you know one one way to kind of create that crummy type strategy which doesn't it's not it doesn't make it a a distributable gift for a period of time but that that keebler switch you know allowing the trust protector to switch from conduit to accumulation is a powerful tool um i have not drafted an srt with something like a crummy power uh that allows a period of time for a district distribution to be made uh and then if it's not taken to be switched over to an accumulation um but i think that's a i think that's a really fascinating idea and if anybody wants to weigh in on that i'll certainly shut up for a minute provide room for that to happen and thank you scott for the note you said there on on clarifying uh on stephanie's question uh erisa um miners does seem to be excluded to uh minor children of the of the plane contributor but congress is talking about moving that to all minors michelle robnet are we saying to create the srt at the time of the participants death out of the rlt or is it trust created now and named as beneficiary it's a trust created now so the stand the standalone part of it standalone retirement trust is it's a created it's a trust created now and funded with kind of the legal fiction of the the ten dollars cash right it it uh it's legit because it owns the cash in the grantors back pocket while they're alive but it's it's essentially an empty bucket um that uh that receives assets at the planned contributors death or the death of their surviving spouse depending on whether it's the primary beneficiary or the contingent beneficiary yeah riley i think we're going to have to have you back for part two everybody seems to enjoy this and uh oh i'm glad yeah grateful for the input yeah thanks for volunteering too it was very helpful oh my pleasure um and i'd be happy to interact by uh by email if anybody wants to to do that or set up a little conference call privately and again i'm always i love being uh you know having things clarified in my mind so if you've got additional notes or clarifications for me based on your experience i'd love to hear it well i don't see any more questions and i think we're uh kind of all the way through your material so let me thank you on behalf of the oba ppt for your presentation today i think we had a great turnout and we didn't have a whole lot of difficult uh interruptions with the uh cars and the uh you know emergency vehicles sounding behind us so uh riley we just thank you a lot for your presentation today thank you dan appreciate the invite yeah glad having you okay we're all done thank you guys turn in your forms