Bruce Steiner

There is no way to calculate "all" approved methods for pre-59 1/2 distributions. IRS Notice 89-25 sets forth several methods, but is *not* exclusive. There have been numerous private rulings which have approved various methods, but they are not exclusive. See my article on this subject, which is scheduled to appear in the December 1999 issue of Estate Planning. Each affected person may wish to consult his/her tax/estates attorney, who ought to subscribe to this publication, and who ought to be able to assist him/her. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Suppose you think your income will be under $100,000, and you convert to a Roth IRA. Then your return is audited and (after October 15 of the following year) you find out that your income was over $100,000. Can you still recharacterize back to a traditional IRA? ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Assuming the children were the beneficiaries ever since the IRA owner reached his required beginning date, whether he was recalculating his life expectancy will make very little difference. During the IRA owner's lifetime, the required distributions will be based upon the minimum distribution incidential benefit (MDIB) rules. After the IRA owner's death, the joint and survivor life expectancy (if he elected term certain) is only slightly longer than the child's life expectancy, since the joint and survivor life expectancy is based primarily on the child's life expectancy. Note that while he could recalculate his own life expectancy, he can't recalculate the children's life expectancies for purposes of the distributions after his death (though the MDIB rules effectively recalculate the children's life expectancies during the IRA owner's lifetime). Assuming the IRA owner reached his required beginning date, it's not yet completely clear whether, after his death, each child can use his/her own life expectancy, or whether all of the children have to use the oldest child's life expectancy. Most commentators have assumed that all of the children have to use the oldest child's life expectancy. But I think an argument can be made that there are effectively separate shares, since each child receives an equal percentage interest, and since (given the MDIB rules) there is no opportunity to take unfair advantage of the situation. In this regard, PLRs 9004072 and 9012009, while not persuasive, may be helpful. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

The general rule is "no." But there are many exceptions. For more details, see my article on this subject in the October 1997 issue of Estate Planning. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

If you convert to a Roth IRA in 1999, the Roth IRA regulations permit you to recharacterize back to a traditional IRA and then convert again once this year. In one of Barry Picker's articles at he suggests that if you convert into several Roth IRAs and one of them drops in value, you could recharacterize that one Roth IRa and then reconvert it. (I suppose the extreme case would be to put each separate security into a separate Roth IRA.) This seems consistent with everything else involving IRAs (for example, if you have several IRAs, you can calculate substantially equal periodic payments separately for one IRA for purposes of avoiding the penalty for pre-59 1/2 distributions). But I would appreciate it if others would confirm that the above is their understanding as well. I have a client who set up several Roth IRAs so that he could leave each one in trust for a different beneficiary and be assured that he would get the benefit of the different life expectancies (which he might have gotten anyway, but there is some question as to that issue). ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

I have set up a number of IRAs for clients which invested in private investments. With respect to having an IRA own a foreign sales corporation, the Tax Court case of James H. Swanson, 106 T.C. 76 (1996) suggests that it is permissible. The application of the prohibited transaction rules to IRAs can be extremely complicated. The client should review the Swanson case and decide for himself/herself if he/she thinks it is sufficient authority to proceed with the transaction. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

In the case of a 401(k) plan, or other employer plan, you have to check the plan to make sure it offers all the choices that the law allows. If this presents a problem, the employee (if it is possible for him/her to do so) may wish to take his/her benefits out of the plan and roll them over into an IRA. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Unrelated business taxable income (due to the leverage in the fund). You can avoid this with offshore funds, at a cost (at the fund level) of the withholding tax on dividends. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Merv Wilf's article is a bit confusing. Where a trust is the beneficiary of an IRA, the IRA benefits will generally be payable to the trust over the life expectancy of the oldest beneficiary of the trust. For example, if an IRA is payable to a credit shelter trust, this will generally be the spouse's life expectancy; and if an IRA is payable to a trust for the benefit of a child and the child's issue, this will generally be the child's life expectancy. This means that, by the end of the spouse's or child's life expectancy, the IRA benefits will have been distributed from the IRA to the trust, but *not* from the trust to the ultimate beneficiaries. Where the trustees have a spray or sprinkle power, the measuring life should be the oldest beneficiary to whom the trustees can make distributions. In a credit shelter trust, this is generally the spouse; and in a trust for the benefit of a child and the child's issue, this is generally the child. The power of appointment is the more difficult issue. I think the better result is to disregard the class of permissible appointees, although I know that this issue is not free from doubt. I wish that Merv Wilf's article were more persuasive on that point. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

This is nothing new. While they could have been clearer on this point, PLRs 9004042 and 9012009 suggest that this is the correct result. This result makes sense (although that by itself is not necessarily determinative). There is no opportunity to gain an unfair advantage by treating each child's interest as a separate share. During the IRA owner's lifetime, the distributions are the same with respect to the share as to which each child is the beneficiary. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Dealing with IRA custodians is often frustrating at best. But you should be able to find one that will accept an IRA for a minor. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

The complexity here is caused by the use of the living trust. By way of background, living trusts are oversold, overhyped and generally not necessary. They do not save taxes, and they generally do not significantly reduce the expenses of administering the estate. What would happen upon a disclaimer would depend upon the terms of the living trust. But it shouldn't be difficult to name a credit shelter trust as the contingent beneficiary of IRA benefits. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

I plan to concentrate my writing on different aspects of planning for retirement plan distributions. My last few articles were on the (now repealed) grandfather exemption from the penalties on excess distributions/accumulations (2/96 issue of Estate Planning), spousal rollovers where the spouse was not the named beneficiary (10/97 issue of Estate Planning) and avoiding the penalty on pre-59 1/2 distributions via substantially equal periodic payments (scheduled for the 12/99 issue of Estate Planning). Any suggestions as to topics for future articles would be appreciated. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

"Per stirpes" is just a way of saying in two words what would otherwise take about two pages. Many people use the trust department of a bank *after* they die. But while they are alive, they often manage their own money. Very few clients have their IRAs as bank deposits. The problems seem to arise primarily with mutual fund companies, where there is no individual who will suffer if the client moves the account to another institution. Problems sometimes arise, too, with the retail side of banks where the IRA is held in the form of bank deposits. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

There are a number of exceptions to the 10% penalty for distributions before age 59 1/2. One of these exceptions is for substantially equal periodic payments. I wrote an article on this subject, which is scheduled to appear in the December 1999 issue of Estate Planning. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

It's like a Will in the narrow sense that it sets forth the recipients and the method of determining each recipient's share, though the terms of the trusts are generally contained in the Will rather than the beneficiary designation (though I know of one practioner whose beneficiary designation form runs about 30 pages and contains all the trust terms). I didn't want to mention the name of the financial institution here, and in any event we've had trouble with many of them. On the other hand, we've had good experiences with some of them. In some cases, for example, we've used a complicated formula dividing the benefits between the spouse and the credit shelter trust using a marital deduction formula. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

A client wants what I consider to be a fairly typical IRA beneficiary designation. He wants his wife as the primary beneficiary. If his wife does not survive him, he wants his benefits to go to his issue, not outright, but rather each person's share is to go to the trust for that person under the client's Will. This seems like it's what most people would want, especially in our practice where most people provide for their beneficiaries in trust rather than outright, except for retirement benefits going to the spouse (which generally pass outright so the spouse can roll them over). We are having a problem with a major financial institution which doesn't seem to understand this. I suppose we could have drafted the Will slightly differently, to provide for a residuary trust which, if the spouse does not survive, is divided into equal shares for the children and held in further trust for their benefit, so that the residuary trust's existence is momentary, and then named the residuary trust as the contingent beneficiary. But, notwithstanding PLRs 9012009 and 9004042, the way we drafted it might give each child a slightly better chance of being able to use his/her own life expectancy. The broader issue here is that it seems that I or fellow practioners have had difficulty (thus resulting in increased costs to the client) with a good many financial institutions. Does anyone have any thoughts on this? ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

In response to John Olsen's long message of March 23, I cannot understand why someone would go through the complexity of creating a revocable trust, naming it as the beneficiary of his IRA benefits, and then having the trust pay out to the daughters outright. But even under the old proposed regulations, there are several PLRs that are more liberal than one might guess, so that the stretchout might have been OK even under the old proposed regulations. PLRs 9641031, 9537005, 9253052. Of course, if he wanted the daughters to take outright, he could simply have named the daughters as beneficiaries; and if he wanted the daughters to take in trust, he could have left the benefits to trusts for their benefit. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Notwithstanding the above, it's interesting to note that in PLR 9237038, where the husband left his IRA to his wife, but she died before rolling it over, the Service refused to permit a rollover on her behalf after her death. I think the results in the two situations can be reconciled. In the case where the participant died before rolling the distribution over, he died within 60 days of receiving the distribution, and the opportunity for hindsight was limited. However, in PLR 9237038, about two years had passed since the husband's death (although in that particular case, the taxpayer represented that the wife had already decided to roll the IRA over into her own name). ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

IRAs payable to a beneficiary are not probate assets (since they are payable to the beneficiary). By having a beneficiary, you generally get a longer payout period, and, depending on what state you are in, you can avoid creditors. But besides the above, what's the big deal about probate. To probate a Will, you bring it in to the court with some simple forms, a death certificate and a small check. You don't probate assets -- you probate the Will. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

I agree with Barry that the disclaimer shouldn't make any difference if the IRA owner was beyond his/her RBD. But I don't see why it wouldn't work if the IRA owner had not yet reached his/her RBD. As to separate counsel, the attorney for the estate *is* the attorney for the executor. While the attorney for the executor generally assists beneficiaries in dealing with issues relating to the decedent's nonprobate assets, in this case since he/she is unable or unwilling to deal with this issue, the beneficiaries will have to deal with it or get counsel to help them deal with it. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Barry has a good suggestion. Even though neither spouse's estate should have any interest in the other's IRA (since neither one survived the other), if each spouse's executor disclaimed his/her decedent's (nonexistent) interest in the other's IRA, the bank would no longer be able to claim that each IRA is payable to the other spouse's estate. Since the spouses really didn't have any interests in each other's IRAs, assuming they had not yet reached age 70 1/2, the children ought to be able to use their own life expectancies. Barry: do the rulings using the disclaimant's life expectancy cover cases where the IRA owners had not yet reached age 70 1/2, or only where the IRA owners were beyond 70 1/2? ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

Why wouldn't Florida law govern? The people were Florida residents. You are correct as to the default rule -- in case of a simultaneous death, the beneficiary is treated as not surviving. While I haven't looked at this in all 50 states, it's hard to imagine any state having a different default rule. The real issue in these cases is usually to get the marital deduction in the richer spouse's estate. That's why the Will of the richer spouse often overrides the default rule, and provides that in case of a simultaneous death, his/her spouse is deemed to survive him/her. The common problem with IRA benefits is that the clause in the Will overriding the default rule may not apply to nonprobate property such as IRA benefits. Also, in the case of IRA benefits, if they are payable to a spouse who dies before rolling them over, the IRS takes the position (in at least one PLR, which I cite in my article in the October 1997 issue of Estate Planning on spousal rollovers where the spouse is not the named beneficiary) that the spouse's executors can't do a rollover on his/her behalf. But in your case, you're not trying to override the default rule. So I don't see what the problem is. If the primary beneficiary doesn't survive, the contingent beneficiaries take. Why are they using a lawyer who refuses to do research and to advocate the client's interests? What does he/she think he/she is getting paid for? Barry Picker is correct that the real issue here is the stretchout. If the children (or the grandchildren, if they are next in line and the children disclaim) can stretch the benefits out over their life expectancies, the income tax deferral can be extremely valuable. But I don't think a decedent's executors can disclaim the decedent's IRA benefits, since the decedent had control over them while he/she was living. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

If they weren't getting married, his IRA could make a loan to her. We've had a number of cases in which IRAs have invested in private investments. You have to be *very* careful to avoid both the prohibited transaction rules and the unrelated business taxable income rules. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL

See PLRs 9812038, 9801050, 9747045, 9050030, which approved this. ------------------ Bruce Steiner, attorney (212) 986-6000 (NY office) (201) 862-1080 (NJ office) also admitted in FL