Anyone familiar with a conduit IRA trust?

[pb4uski]

^^^ That's probably a good reason for making it very hard to do.

I'm not concerned about DW blowing the dough in this case. If anything, the opposite... I have a devil of a time getting he to spend... though she is in process of signing up for a cruise and I'm encouraging her to go for an oceanview balcony. A suite would be great but it's twice the price.

 

[yclipse]

Hey all. We are refreshing our estate planning since we recently moved from Florida to Texas.

Because DW was a SAHM, it turns out that my traditional IRA is our largest asset despite Roth conversions over the last 13 or so years since I retired. About 35% of our net worth including properties and almost 1/2 of our retirement savings. Currently, DW is the primary beneficiary and our two kids are contingent beneficiaries which I think is pretty typical for those in our situation.

What I want to happen is for that IRA to be used to support DW should I predecease her and then any money not used for her support go to our two kids. While I think it unlikely, I've heard enough horror stories about wealth going to the next spouse or the next spouse's kids or even just depleted and spent on some charming gold digger that I want to protect against any such outcomes.

I've read about conduit IRA trusts that would be the primary beneficiary and provide some guardrails on IRA withdrawals and restrict who can inherit the IRA once DW passes. Any RMDs based on DW's life would be paid by the IRA to the trust and then distributed to DW in the same year just like if she inherited the IRA. In addition to RMDs, the trustee could make additional IRA withdrawals to the trust and have the trust distribute them to DW if needed for DW's care and support (like if needed because she went into assisted living or a nursing home). OTOH, DW would not have totally unrestricted access to the IRA like she would if she inherited it and could not name different beneficiaries.

To be clear, between RMDs from this traditional IRA, my SS that DW will "inherit" and my joint life pension, DW will be receiving more than we spend today as a couple, so she will be well provided for.

Thought? Anyone familiar with these?

I respectfully suggest that your question needs legal guidance, not just the well-intentioned advice of non-lawyers with some knowledge who hang out here. I would ask around a bit for an estate planning lawyer who has a comfortable familiarity with IRA - not all of them do.

 

[pb4uski]

^^^ I agree and am also talking with an estate attorney. As the title suggests, I was just wondering if anyone has done this so I could benefit from their experience.

 

[JBTX]

^^^ I agree and am also talking with an estate attorney. As the title suggests, I was just wondering if anyone has done this so I could benefit from their experience.

I’m not a lawyer but I have some familiarity with the topic. What I learned came from a few estate planning attorneys on Bogleheads. Most of our current assets are in IRAs and Roths so applicable to us.

For IRAs in trusts you want them to be “see through” such that they can maintain the full IRA stretch of the beneficiary. Prior to the secure act, Conduit trusts were fairly common. Conduit trusts mandated RMDs be distributed from the trust - thus the trust is a conduit. If the IRAs weren’t too terribly large, and there used to be a lifetime stretch, modest annual RMDs weren’t a particularly big deal. Now after the Secure act, conduit trusts make less sense, and are sometimes problematic if the beneficiary is not a spouse and was subject to the 10 year rule.

The alternative to a conduit trust is an accumulation trust. Sometimes called discretionary trust. An accumulation trust gives you the choice to distribute the RMD, or accumulate it. Sometimes it makes sense to retain the RMD in the trust if asset protection is a priority. Or with a Roth. Nowadays accumulation trusts are considered superior in most cases. Also, post secure act they are considered easier to draft. Prior to that you needed an attorney experienced with drafting those trusts.

Our trusts are accumulation trusts. They don’t read as too terribly complicated, they just need to be set up such that they are see through (meaning the beneficiary is obvious and is a person not an entity)

I’m not a lawyer but that’s what I’ve picked up.