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IRS Roadmap for Determining Whether a Trust is a “Look Through” Trust

When a trust is named as the beneficiary of retirement benefits, there will be a designated beneficiary for purposes of the required minimum distribution (“RMD”) so long as the trust is a “look-through” trust, a trust that complies with the requirements set out in Reg. § 1.401(a)(9-4, A-5(b).  If a trust is a “look-through” trust, the oldest countable beneficiary will provide the measuring life for purposes of the RMD.  Determining the countable beneficiaries of a trust, and drafting to make sure the desired person is the oldest countable beneficiary, is complex and necessitates precise drafting.  Most recently in PLR 201203033 the IRS has provided a detailed roadmap to be followed in making this determination.

In PLR 201203033, the decedent, whom we’ll call Bob, had created a revocable trust that created a Marital Trust, an Exempt Trust and a Primary Trust.  Then in his beneficiary

Yes, Virginia….

Yes, Virginia….

March 25, 2012

Authored by: Kathy Sherby and Stephanie Moll

In an unusual ruling, the IRS shows it has a heart when it comes to helping a minor recover inherited funds misappropriated by the minor’s mother.  In PLR 201139011, the Service permitted the minor to contribute funds to an inherited IRA that were inappropriately distributed in a lump sum from a qualified plan she inherited from deceased father.

The minor, whom we’ll call Alice, was 13 when her father, whom we’ll call Eric, died.  Eric, who was unmarried at the time of his death, had designated Alice as the beneficiary of his qualified plan.  While Alice could have arranged for a trustee to trustee transfer of the qualified plan benefits to an inherited IRA, Alice’s mother and guardian, whom we’ll call Francis, instead arranged for the plan administrator to make a lump sum distribution of the benefits.  Francis then reported the distribution on a

Community Property Recognized in Post-Death Division of IRA

In PLR 201125047, the IRS allowed a surviving spouse to roll over a decedent’s entire IRA to the surviving spouse’s IRA when the surviving spouse exchanged her community property interest in other property for the decedent’s community property interest in his IRA, as authorized under applicable state law.

The decedent, who we will call David, resided in a community property state with his wife, whom we will call Susan, to whom he had been married for 21 years.  David had failed to name a beneficiary of his IRA, so that when he died, the beneficiary was David’s estate.  David and Susan had created a community property trust, and David’s Will caused the IRA to become an asset of this trust.

2012 Qualified Plan Limits – YAY!

October 25, 2011

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Last week, the IRS issued a press release announcing its 2012 cost-of-living adjustments for retirement plans. The chart below reflects the qualified plan limits for calendar years 2009-2012.

Type of Limitation

2012

2011 

2010

2009

Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups)

$17,000

$16,500

$16,500

$16,500

457(b)(2) and 457(c)(1) Limits (not including catch-ups)

$17,000

$16,500

$16,500

$16,500

Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (1)

$5,500

$5,500

$5,500

$5,500

SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals

$2,500

$2,500

$2,500

$2,500

415 limit for Defined Benefit Plans

$200,000

Are Inherited IRAs Protected from Creditors in Bankruptcy?

During a participant’s lifetime, his or her IRA is considered “retirement funds” that are protected from the participant’s creditors, even if the participant files bankruptcy.   But, what happens to the creditor protection after the participant’s death?  Is the IRA now protected from the beneficiary’s creditors?  Whether post-death creditor protection is available to inherited IRAs under the 2005 Bankruptcy Act has been the subject of a number of cases decided in the last year.

The argument made by bankruptcy trustees is that, on the death of the initial IRA owner, the IRA ceases to be “retirement funds”, as it is not the retirement funds of the beneficiary, and therefore loses the protection afforded to the IRAs under the Bankruptcy Code.

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