IRA Beneficiary - Special Needs Trust

[Christine Roberts]

Last year PLR 200620025 said that a disabled beneficiary of a parent's IRA could essentially re-designate the IRA, naming as beneficiary a newly-created special needs trust (SNT) of which he was the sole beneficiary. The IRS said that (a) the transfer of the IRA to the SNT was not taxable because the SNT was a self-settled "grantor" trust; and (b) the SNT beneficiary's life would be the measuring life for minimum required distributions from the IRA.

In the PLR situation the SNT was created after the death of the IRA holder, as a way for the disabled beneficiary to remain qualified for Medicare and other gov't. benefits. So it was not an estate planning technique, per se.

My question is the degree to which practitioners are using the PLR as a basis for estate planning, for instance by instructing clients to name SNTs as IRA beneficiaries during life, whether or not the SNT is a grantor trust or third party trust.

Would the transfer of the IRA to the SNT on the IRA holder's death under these circumstances still be a nontaxable event under these circumstances? Would the SNT beneficiary still be the measuring life in such circumstances?

Just trying to figure out if practitioners are interpreting the PLR aggressively or cautiously, given the eternal provision about applying PLRs to different factual circumstances. I have posted on the "IRA/Estate Planning" board but also interested in opinions shared on this board.

[BPickerCPA]

An SNT that is not a self settled trust, but rather is a trust created by the IRA participant, would be treated like any other trust as beneficiary, and this PLR would have no significance.