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Plan Distributions to Multiple Benificiaries of Trust


Guest jmeyer61
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Guest jmeyer61

My father-in-law died on 6/6/04, he was 83 and had been taking RMDs since age 70-1/2. In addition to the spouse of his deceased brother, he was the only other remaining participant in a Profit Sharing Plan. The plan had a benificiary designation on file that his most recent spouse had signed (waiving her right to plan assets) which named his living trust as beneficiary. The benificiaries of the living trust are his four children (from previous marriage). The pension funds were not broken into separate accounts prior to his death. As the executor of his estate, I am trying to determine the options and requirements we have to distribute the pension funds to the multiple beneficiaries of his living (now irrevocable) trust. Can the funds be separated into respective shares now? Should distributions be made over the life of each child, over the life of the oldest beneficiary, or over what was his remaining life expectancy? Are there any roll-over options for the children? Where do I go to get a comprehensive overview of the issues relating to this situation? I would greatly appreciate any guidance!

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Your questions show you have a good grasp of this area. As to where to go to get a comprehensive overview of the issues relating to this situation, probably the best source is an attorney who works in this area and who has the profit sharing and estate planning documents available to review.

My guess is you will find you cannot use each child's life expectancy. The IRS regulations provide that separate shares established at the trust level are not sufficient to allow use of each child's life expectancy. They must be established at the plan and beneficiary designation level. So you probably are left with either your father-in-law's remaining life expectancy or the life expectancy of the oldest trust beneficiary. Whether you can use the life expectancy of the oldest trust beneficiary cannot be determined without reviewing the trust.

Perhaps the first thing to check is whether the plan allows for a long-term distribribution to the trust. You might find that the plan allows only a lump sum or installments over a few years. Then the next question would be whether the plan can be amended to allow distribution over a long term (if it does not now). You need an employee benefits practitioner to answer that question.

As to rolling over, not under current law. Legislative proposals have been introduced from time to time to allow rollovers by trusts if allowed by Treasury regulations, but so far none has come close to becoming law.

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