Many CPAs find that clients have accumulated considerable retirement assets. One tax-effective way to provide for a method of passing these assets on to grandchildren is to use an "IRA Trust." This is a dedicated trust used to receive assets from an IRA account for the benefit of a particular beneficiary.
Consider a client, Jack, age 75, who in 2005 establishes an IRA Trust for the benefit of Mary, his 12-year-old granddaughter. If Jack dies in 2010 at age 80, the trust may receive required minimum distributions from Jack's IRA for a term of 65 years, based on Mary's age in the year after the year of Jack's death.
In order for the trustee to use Mary's life expectancy as determined in 2011, the trustee must file certain paperwork with the IRA institution by Oct. 31 of the year following the IRA owner's year of death. Failure to satisfy this rule, however, would reduce the payout period to only 9.2 years, commencing in the calendar year 2011, and reduced by one for each year thereafter! This can amount to a substantial sum of money--perhaps several million dollars if a large IRA is involved.
A different …