Bruce Steiner

In addition to avoiding the problem with the § 691© deduction not covering state death taxes that Barry Picker pointed out, the Roth conversion has lots of other benefits. By paying the income tax out of other assets, you are effectively putting additional assets into your IRA. No required distributions at 70 1/2. You have a tax-paid IRA to leave in trust for your grandchildren and to allocate your GST exemption. The only problem is that most clients don't qualify for the Roth conversion. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Is there some other way to pay the estate tax, so as to prolong the income tax deferral (assuming you would otherwise be able to stretch out the IRA benefits)? As Barry noted, the attorney handling the estate should be advising you on how to handle this. That's what he/she is getting paid for. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Art E: I don't know whether the problem is in the program or in the user, but the Roth conversion is generally very beneficial. I suggest you consult with competent tax/estates counsel. Even if there were no estate tax, and everything else were equal, to the extent the IRA owner has outside money with which to pay the income tax on the conversion, he/she is effectively stuffing more money into the IRA by converting. (In your example, that only covers $2 million of the IRA.) Other benefits of the conversion include (i) no required distributions at 70 1/2, (ii) a tax-paid IRA to fund a credit shelter or GST exempt disposition, (iii) avoiding the IRD problem. For more on this, see my column in the May/June 1998 issue of the CCH Journal of Retirement Planning. For information on this publication, see www.cch.com. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

You are on the right track. If you name your wife as primary beneficiary and your credit shelter trust as contingent beneficiary, your wife can wait until after your death to decide whether to disclaim (refuse to accept) any or all of your benefits. But the tradeoff is that a disclaimer trust is less flexible than a mandatory credit shelter trust. See my column on the credit shelter trust as beneficiary which will appear in the January/February 2000 issue of the CCH Journal of Retirement Planning. For more information on the publication, see CCH's website at www.cch.com. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

The IRS has approved numerous variations on the three methods set forth in Notice 89-25. Also, these three methods are not exclusive. See my article on this subject, which will appear in the January 2000 issue of Estate Planning. The lawyer who handles your estate planning should subscribe to this magazine. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Does anyone know of any IRA custodians or trustees that offer low or moderate cost no-load mutual funds (for those who prefer mutual funds) and low or moderate cost brokerage (for those who prefer to select stocks), and which do not create major hassles regarding beneficiary designations? If anyone in this group works for an IRA custodian or trustee, this can be a great marketing opportunity for your institution. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Obviously the money has to go somewhere. Assuming the original IRA owner didn't restrict it, the beneficiary gets to decide where it goes. Assuming no creditor or elective share problems, it hardly matters whether the beneficiary decides by Will or by designation with the IRA custodian. The beneficiary should check with the IRA custodian (and read the IRA agreement) to ascertain the IRA custodian's procedures. The beneficiary should be careful to make sure that the IRA custodian won't insist on dumping out the entire balance upon the beneficiary's death, despite the disastrous tax consequences. If that is a problem, the beneficiary should move the account to another custodian. We generally avoid this problem, by leaving IRAs to non-spouse beneficiaries in trust rather than outright. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

See my column on this issue in the September/October 1999 issue of the CCH Journal of Retirement Planning. To subscribe, see their website at www.cch.com. If the spouse dies first, consider a Roth conversion (if the IRA owner will qualify), or a charitable remainder trust as beneficiary. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Notice 88-38 permits either the IRA owner or a beneficiary to do this. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

There are a several IRA custodians who will permit private investments in an IRA. The attorney who handles your estate planning should be able (after speaking with a few of them) to recommend the most appropriate one for the type of investment you want to make. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

There are lots of complexities (many of which have required PLRs) to having a revocable trust as beneficiary? Why do you want to name a revocable trust as beneficiary? (Is there some special reason you need or want a revocable trust in the first place? Revocable trusts do not save taxes, and in most cases they do not significantly reduce estate administration expenses.) ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

There are lots of complexities (many of which have required PLRs) to having a revocable trust as beneficiary? Why do you want to name a revocable trust as beneficiary? (Is there some special reason you need or want a revocable trust in the first place? Revocable trusts do not save taxes, and in most cases they do not significantly reduce estate administration expenses.) ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

You can disclaim nonprobate assets such as retirement benefits. The PLRs cited are just a few of many PLRs in which people disclaimed retirement benefits, and since this is not a novel issue there are a vast number of cases in which retirement benefits are disclaimed without a ruling. But this wouldn't be a disclaimer, because she wants her share to go to one of her sisters. In order for it to be a good disclaimer, she can't direct how the disclaimed property passes -- the disclaimed property has to pass as if she predeceased the decedent, in this case presumably either to her issue or to *both* of her sisters. Depending on her circumstances (she may have creditor problems), she may want to disclaim. The attorney handling the decedent's estate (or her own attorney) ought to tell her how the benefits would go if she were to disclaim, and prepare the appropriate disclaimer if she chooses to disclaim. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

See James H. Swanson, 106 T.C. 76 (1996) for the taxpayer's argument that this should be OK. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Obviously a short answer on a message board is not a substitute for a discussion with your own attorney. But from an estate planning standpoint selling a portion of the stock of your company to an ESOP may enable you to diversify your assets while avoiding current capital gains taxation and keeping effective control of the company. If this is a specific case, you should consult with competent tax/estates counsel. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Have the attorney speak with the accountant. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Let's not get hung up on the choice of software. One can run some numbers with Lotus, Excel, a calculator, pencil and paper or perhaps (if one knows how to use it, which I don't) an abacus. Of course, the results will depend on the assumptions one makes. I generally make the following assumptions, unless a client wants me to illustrate different assumptions: 1. He will live to his life expectancy 2. If he is married, he will remain married to his present wife, she will survive him and she will live to her life expectancy. 3. In the case of a traditional IRA, he will name his wife as beneficiary; during his lifetime he will take the minimum required distributions (for simplicity, I generally assume the term certain method, but you could run the numbers using recalculation or hybrid if you like); after his death his wife will roll the benefits over into her own IRA, name the children as beneficiaries, take the minimum required distributions (taking into account the MDIB rules); and after her death the children will take the minimum required distributions over the balance of the oldest child's life expectancy. 4. In the case of the Roth IRA, neither he nor his wife will take any distributions during their lifetimes. 5. In the case of the Roth IRA, for simplicity, I usually illustrate the wife leaving the benefits to the children, who take the benefits out over the life expectancy of the oldest child. But for people who don't otherwise use their GST exemption during lifetime (which is many if not most people), the Roth IRA is often a good place to allocate GST exemption. In that case, (i) his wife could leave $1.01 million of the Roth IRA in trust for the grandchildren and the balance to the children, (ii) his wife could leave the entire Roth IRA to or in trust for the grandchildren (and pay GST tax on the excess over $1.01 million), or (iii) he could leave $1.01 million of his Roth IRA in trust for the granchildren and the balance to his wife. 6. Since IRA assets are not subject to current income taxation, some reasonable pre-tax investment return on IRA assets. 7. The more difficult assumption to make is the after-tax return on personal (non-IRA) assets. This depends to a large degree on the client's preferences as to investments (e.g., tax-exempt bonds, equities with high or low turnover and high or low dividends). 8. Some reasonable income tax rates for (i) the income tax on the conversion, (ii) the income tax on future distributions from a traditional IRA and (iii) the income tax on personal (non-IRA) assets. Even if he does not convert now, there is a reasonable chance that, under the current tax law, he or his wife will eventually be able to convert sometime before age 70 1/2. To do so, he would likely have to retire, and arrange his investment assets so as to keep his income under $100,000. Even if he can't easily do so, if he dies first, it may be easier for his wife to keep her income under $100,000 after his death, depending upon her own earnings and investment income. During the first couple of years after his death, the income from his investment assets can be kept in his estate (and there will likely be less capital gains due to the basis step-up); and after his estate is wound up, his wife need not be taxable on the income or capital gains from the credit shelter trust, and need only be taxable on the income (but not the capital gains) from the marital (QTIP) trust. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

The links in my previous message didn't appear. I'll try them without the symbols. The website for CCH is cch.com. The website for Roth IRAs maintained by Brentmark Software (whose products we use) is rothira.com. In each case, add the http://www. at the beginning. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

I'm a bit confused by Bill T.'s comment. The Roth conversion is generally very advantageous to the IRA owner. See my articles on this subject in the CCH Journal of Retirement Planning . Also see the articles by Jim Dam in Lawyers Weekly and the article in the New York Times in which I am quoted, all of which are linked to . Of course, many clients are not eligible to convert due to the $100,000 income cap. However, at least in the short run, it is not advantageous to financial institutions, since the IRA owner has to withdraw other funds in order to pay the income tax on the conversion. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Barry: It's very hard to say exactly what constitutes tax advice or legal advice. Dealing with IRA custodians is often difficult. If anyone in this group works for a financial institution, you have a wonderful marketing opportunity if you can make it easy for people to deal with your institution with respect to IRAs. The best advice to give an IRA owner or beneficiary who is not happy with a financial institution is to move the account to another financial institution. The new one will likely be cooperative in processing the transfer forms, and the old one will likely transfer the assets without giving you a hard time. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

It's really puzzling that IRA custodians have trouble with "per stirpes." It would probably take a couple of pages to define it. It's like the word "mortgage." It's a big, technical word. But everyone knows what it means, and it would probably take a couple of pages to define it. The bigger issue is that lately some IRA custodians (notably Vanguard) seem to be having trouble with most any beneficiary designation intended to reduce taxes. I don't think it should be any of the IRA custodian's business what the beneficiary designation says. The IRA custodian should simply stamp it to show the date it was received. If, after the IRA owner dies, there is a dispute as to who is entitled to the benefits, the IRA custodian should simply hold the money until the interested parties resolve their dispute (and so notify the IRA custodian in writing) or a court decides the question. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

The estate planning advantage of an ESOP is that it lets the controlling shareholder(s) sell some of their shares and diversify without having to pay capital gains taxes, while continuing to control the company. This is a complicated area, and if this involves a specific case you should consult with competent tax/estates counsel. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Assuming husband has reached his required beginning date, if he has separate IRAs for each child, then after his death, each child can use his/her own life expectancy. If he has a single IRA payable to the four children, it is not clear whether each child can use his/her own life expectancy (after their father's death), or whether they must all use the oldest child's life expectancy. Most people think it is the latter, though I think one could make a good argument for the former. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

See my article on this subject, which is scheduled to appear in the December 1999 issue of Estate Planning. There are numerous private rulings, which have approved various methods of computing the distributions. The IRS is likely to be more concerned with interest rates that are too high than too low. Your tax/estates attorney ought to be able to give you specific advice for your situation. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

The final QDOT regulations allow the benefits to be payable to the spouse, and for the spouse to create a QDOT and agree to contribute the "principal" portion of each distribution to the QDOT. Thus, you can get the benefit of both the rollover and the marital deduction. We have used this procedure successfully. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL