"The moral of the story is, we have to get these [IRA trusts] right the first time," says Robert S. Keebler, a CPA in Green Bay, Wis.
Conduit trusts. What if your kids have low-risk, stable jobs and happy marriages, and your main concern is simply making sure they stretch out their inherited-IRA withdrawals? One option is a lower-maintenance "conduit" trust.
Say you want to leave your IRA to your three children. You could set up a conduit trust for the benefit of each child, and then name those trusts as the beneficiaries of the account. Each year, the required distributions from the IRA, divided into separate inherited accounts, would be based on each child's age, would go into his or her individual trust and then be paid out to the child. You can set it up so the child can't take out more than the minimum each year.
But what if you aren't sure what the future holds for your children? Keebler is increasingly advising clients to set up a conduit trust with a "toggle switch," he says. With a conduit trust, the IRA distributions have to be paid outright to the trust beneficiary. But by including special language when the trust is set up, the trustee could have a one-time option to switch to a more protective trust, as described above, between the IRA owner's death and Sept. 30 of the following year.
In a private-letter ruling five years ago, the IRS said that a trust with that option met its standards. "This gives you the chance to take a second look at the trust and decide what's more important"-simplicity and the potential for a longer distribution period, or creditor protection, says estate lawyer Philip Kavesh in Torrance, Calif., who requested the ruling.
The account managers not only work with smaller clients, but screen investors for the more experienced advisors and manage client relationships and help service some of the larger accounts, he said.
While the model isn't right for all advisory firms, "any firm of a decent size could do this," said Tuttle.
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