This is the Truth Network. Yeah. Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.
Now, let's get started with Finishing Well. Welcome to Finishing Well with Certified Financial Planner Hans Scheil. And today's show is a see-through trust for IRA beneficiary estate planning. That's a whole mouthful to say, okay. We're going to learn.
And I think it's a wonderful educational. idea here on today's show on understanding Trust in general, and when that might be a good thing to do with your estate planning, as estate planning is a huge part of what we get to do. Uh As Christians, it's a beautiful thing, really. And Paul talked about it in Galatians 4. He said, the heir, as long as he is a child, differs nothing from a slave.
Though he being of the Lord of all, in other words, the the child Before they come into Christ, they're an heir of everything, but they're still a slave. Until, right, they're still under tutors and governors until the time appointed by the Father.
So, you know, nobody comes to the Father except through Christ. And as that time comes, then they become Eligible to actually deal with their inheritance.
So the idea of being Just because they're owners or heirs does not necessarily mean they're ready to take the throne or ready to deal with all the financial resources they may be having. And so, It's beautiful how people ahead of us. Lycons actually, and trust attorneys and all have come up with ways to Essentially, like God did, to help protect ourselves from ourselves. And so you're helping protect in this case. Um your heirs From their inability to understand what they find themselves in, so to speak, Hans?
Okay.
So An IRA has truss-like characteristics. to begin with.
Okay, so Let's understand that your money at your IRA rather is is there and you know, you you're the custodian of your own IR8. But that money is. Yes. really kind of managed by a third party where it's a Or a third entity, and it has to stay in your name. In other words, You can't take.
The money that you have in your RIA, IRA, right now while you're alive, and put it in a trust. A lot of people don't know that. is you can't put IRA money. in a trust where you're alone.
Okay.
Yeah. What we're talking about here. Yes. The money that's in the IRA now is going to go. into the trust when you die.
Okay.
So you're going to make this trust that we're going to create if you do one of these. We're going to make the trust itself the beneficiary of your IRA.
So while you're alive, that beneficiary is just going to read you know, the the see-through trust of Robbie Dilmore. And if there's not going to be any money or anything he needed. until you pass away. It's a testamentary trust. And the see-through or look-through piece of this.
Yeah. You know, according to the IRS. is that when a trust is holding IRA money You That the trust for the IRS needs to be able to see through the trust. to the beneficiaries.
Okay, because Under the Secure Act, which passed under two secure acts. It passed over the last few years. They greatly changed. the way beneficiaries are going to distribute IRA money to themselves, or in other words, They greatly changed. The taxation.
of the IRA money. After the owner.
Okay.
Yeah. It's still beneficial. To be an IRA beneficiary. In other words, because you got 10 years. to distribute it to yourself.
Um And unfortunately, a lot of beneficiaries who really need the money take it all in one year as soon as the person's gone Even though they got 10 years to stretch it out. They're going to take it all right now if they move on. They're going to pay a huge tax bill. Because You know, if you were the beneficiary of an IRA and there was two hundred thousand dollars coming to you. Yeah.
You inherited that in 2026. And then you made. $80,000 anyhow. on your tax return. And 80,000 is a pretty low tax bracket, but it goes from...
So, we have a lot of different things that are going to be. you're going to be up there in the highest tax brackets. IRA, it gets all distributed in one year. You know, 80, 90 grand of it is going to be gone, right?
So you're only going to be left with like 100 or 110, and a lot of heirs.
So need the money. And it's the only money that's coming to them. At least right now they have to wait for other estate money. They say send me a check.
So it's really bad tax plan.
So What created this? see-through trust for your IRA beneficiary. Is there's a way to start the trust, make the trust the beneficiary. Mm. And then Have the trust receive the money.
And then Yeah, but complies The IRS is able to see through to the beneficiaries. and then distribute the money to them. over the 10 years if it's appropriate. Does that make sense? Absolutely.
The question is, why, you know, and who.
So, but as far as it makes sense, and it's beautiful to. actually get that understanding.
Okay.
Okay, so why would you want to do this?
Okay, I mean why would you know the first thing I'm going to tell you is we're not going to do this with a hundred and fifty thousand dollar IRA. I mean, we're just, you know, it's going to cost you too much and create too much. We got other ways to do that.
Okay.
So And we might do it with a $500,000 IRA. But you and I are going to need to have a conversation and see how much of this $500,000 IRA that you're going to need to spend over your lifetime and your spouse's lifetime. That there may not be a big enough estate. At the end. that we need to set up something.
Um then there's another alternative. is could we just meet with your children? But teach them the proper things to do with the money once you die. and to make the right decisions and maybe introduce them for the younger generation of my firm. Yeah.
They will counsel them.
So we don't have to set up a trust and put in all these rules. We can just they can know who to come to and they'll tell them what to do.
Okay.
So I'm kind of talking.
So, what reasons you would want to do this to protect your children or grandchildren? to control how and when the dollars are distributed. to protect assets from creditors. Divorces Four decisions. Number four, required minimum distribution compliance.
So, you know, I just listed in the video. Really four general reasons. why you would want to think about using a trust. and one of these see-through trucks.
Okay, questions, Robbie. Yeah, well it you know the The situation is in most people, I guess. You've got a child that you're like, man. I could counsel until the cows come home about a lot of things, but based on the decisions I've watched them make. You know, over a period of time, this is a big concern to have him have this kind of resources that.
that literally they would possibly hurt themselves with that. Um You know, it seems like... This would be the situation if you had a certainly something like you're talking about that they're going to all of a sudden inherit a half a million dollars. Um Yeah. Like that, that's a legitimate concern.
Better. You could overcome with this particular instrument, right? Sure, it it is. And so now we're going to jump through to the see-through trust and we're going to say, okay.
So don't go out and set one of these up on your own. If you need to Go to an attorney, you're just listening to this somewhere else in the country or You know, you just want to go to your own attorney, which is fine. you need to ask that attorney how many see-through IRA trusts if you don't.
Okay.
You tell them I want to know. Because A lot of oh yeah, we know how to do that, and I'm telling you that. This is a specialty area.
Okay, and I can tell you that if you need somebody to do this, I can find you someone.
Okay.
that is an expert. Or this particular Sorry.
Okay, because it just you got to meet a whole bunch of criteria or the IRS is going to throw it out and they're going to treat the money and tax it in the trust. And you don't want that to happen.
Okay.
So here are the qualifications for a see-through truck. Number one is the trust has to be valid under state law.
Well, that's pretty easy. Oh. you know, if you if you have a a a a beneficiary I mean, if you have an attorney that draws up a trust, they know how to make one that's valid under the state law. The trust must be irrevocable. Or at least become irrevocable at death.
In other words, You can't have a trust that can be changed. after you die, is it it needs to be irrevocable. All beneficiaries must be identifiable people.
Okay, that's how it's kind of Simple, but you'd be surprised. It needs to the IRS needs to be able to look at the trust. and say this trust is for Joe, Mary, Sally, and Sams. Can I make I mean, it's just they need to be able to identify the people. No charities, no estates.
for non-persons. There's no reason to do charities because you can just name a charity directly as a beneficiary. skip the trust but the money goes straight to the charity, they don't pay taxes anyhow.
Okay.
Um And then a copy of the trust. has to be provided to the IRA custodian. October 31st of the year after death.
So there's a rule about you have to get this to the IRA custodian.
so that they know who to pay and who all these people are.
So those are some of the rules. That sounds simple, but if you're going to pick an attorney to do this, you need to make sure they know all this stuff and can do it in their sleep. Exactly. Yeah. And so this would be a good point, right, to remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com.
and if you go to cardinalguide.com there you're going to find the seven worries tab And one of those is estate planning. And so You know, this video will be found and this recording will be there, but there's a video done along these same lines. It's there under estate planning with the exact same title. And If you go there, you're going to have show notes and all sorts of different links that you can click on and find out more about it. And of course there at cardinalguide.com, you're going to find Hans's book.
Complete Cardinal Guide to Planning Foreign Living and Retirement, as well as his study guide that goes with that. The amazing contact answer Tom Page, which when it comes to these, I highly recommend. You click on that at cargoguide.com. We'll be right back with a whole lot more on see-through trust for your IRA beneficiary estate planning. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM.
a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Planner Han Scheil.
In today's show, we're talking about a see-through trust. You know, not just any ordinary see-through trust, but one for IRA beneficiary estate planning. In other words, the fact that this one. is connected to the IRA. and for the beneficiary is what makes it unique, right, Hans?
Period. And it's really all about the IRS.
Now you've got a trust. The trust itself is the beneficiary. You don't want to name a trust. as a beneficiary of an IRA because it could create a bad tax situation to have the trust tax as an entity. It then passed the money out to the kids.
That would be worse than the kids just cleaning out the IRA.
So It needs to meet a bunch of criteria. that I could help you. determine whether you need one of these things in the first place or whether you really want one. But then if you do. lead you to an attorney that's an expert at this.
so that it it it it meets the IRS rule.
So a see-through trust makes sense. for these five situations. minor beneficiaries. Um Blended families You know, when you got stepkids and they're all named and you know, whether it was moms, dads, and you got Uh These things can be helpful, especially if we're talking about a lot of money. A beneficiary is financially irresponsible.
Which could cover a lot of people. protection from lawsuits or divorce.
So there's There's some levels of protection that you can protect. Your children's inheritance through an IRA. from their Ex-spouse or becoming an ex-spouse, or the divorce.
Sometimes divorces happen. right around the inheritance of money and there's protections in the law for that. But this would give you an extra layer of that. Um And then you just want professional trustee oversight.
So there would be some examples of why you would want to consider this. Yeah. Um Now, I will tell you that We have at least one insurance company that will let you put your IRA in an annuity. And then you can have a control the beneficiary. Or Right inside of the anui.
That is an IRA. You know. Yeah, s some people have kind of called it jokingly a blue collar trust. But it it's just a document. that it's a restricted beneficiary form.
So you could fill the thing out. And it would just You could fill it out. You have to put your IRA into this annuity. By the Adduity Because they I if this doesn't happen until you until you're gone. But the beneficiary would have to Follow exactly.
what you put on this form and with IRAs. You would just say distribute it equally over nine years.
So they make it one year less than the 10 years. Good. It's just a done deal.
So they're less expensive and actually more effective ways to get around this. with a smaller amount of money. Cool. Yeah I'm going to tell you about some of the common mistakes that people make. Because they have they they come out with the trust the beneficiary, but have the IRA specific language.
Big mistake. It can cause a bad tax problem. of leaving charities inside the trust. You don't want to do that. If you're going to give money to charity at your death, give it directly to the charity by beneficiary.
Dog. put it in the trust and then have the trust doll it out to the cherry. Yeah, because the charity isn't going to pay taxes on the Money anyway. Right.
So there's no reason in the world to send that through a trust. No. There's certainly not a tax reason. And you can complicate things and it also could invalidate the trial. because the trust beneficiaries need to be real people of an IRA.
see-through trucks. outdated pre-secure act. Crush designs.
So you just you have somebody that Knows how to design an IRA trust, or they designed one before the Secure Act.
So if you have one of these that was done before 2020. And it's in effect right now. It needs to be looked at and updated. with the Secure Act stuff in there.
Okay.
Um and there's a lot of the people don't do that. Yeah, not coordinating the trust with taxpayers. I mean, the trust itself. needs to be coordinated with other tax burdens. Um so that So we covered a lot of ground here, and it's almost like I'm telling you Here's all the rules.
This was if you just, but don't do it. Yeah, it you know, and I'm not really saying that Uh I I'm just I'm just showing you that. We're going to do it under advisement and we're going to do it with a lot of caution. Oh. Beware of anybody trying to sell you on the idea of a trust.
Uh You're going to get the opposite of that from me. you're going to get both sides of it. I mean there's many times out of our plan We end up recommending that you do some kind of a trust. But we can give you the specific reasons, and then we're going to give you a whole list of reasons over here why you might not want to do this.
Okay.
It might be helpful for you to give us an example of somebody that benefited from it. This kind of trust. Yeah. Well, like If it just You you've seen that like in your own situation where Um Person dies. They they have their kids listed.
They're adult kids listed. as the beneficiaries. Yeah then you've got three or four or five beneficiaries. who are all in different financial situations. Really?
uh one or two of them We'll be able to delay the distributions and do all the things we can do to spread this tax out. And then a couple of them. They end up actually worse off. By inheriting the money because It's all available to them right away. You know, and maybe like our example, it's two hundred thousand dollars that comes.
Yeah. You know, they go and they say, well, I want as much as I can get as quick as I can get it. And then Maybe they withhold at the custodian 10%. taxes are twenty thousand dollars of the 200,000.
So they get 180 when they really owe tax of about. 80 or 90 they only withhold Four minutes. Shm. And then They get the 180, they spend it. It's all gone and then they file their tax return a year later.
value of the IRS. Um And they don't have the money to pay it. I mean, I just. You know, I I don't wanna scare people, but I mean That's not what you want having happening after your death. Yeah.
You know Um At least with a trust, you could require them. Just spread it out.
Okay.
And if you don't have enough money for a trust, I would consider this restricted beneficiary form I mean, if you want to give me a call and talk about this, you know. But there there's a But There's an example that is all examples. I I could go through We could be on here all day. talking about people that you know were they come to me usually after they've spent the money. And saying, How how can I get out of it?
Yeah, it's it's that's the challenge. Estate planning, right? Is to really be honest with yourself. your kids But of course, you know, I love the idea of putting the responsibility on them and educating them on their options. And then putting them You know, in my own case, it it Um It gives me great comfort to know.
That were I to go, you know, that Tammy, my wife, would be able to, because she. you know sh It would just be unbelievably helpful to get in touch with you or Tom or whatever that can help her decide what to do with my life insurance, what to do with the IRAs, et cetera, et cetera, protect her and be able to. you know, created income for life, those kind of things. Um it's all part of the state planning process and You know, this is just one of the many options and tools that's at our disposal, right? But never would we use this within the marriage, right?
No, you don't need to use these. There's other kinds of trusts that you would use in marriage for tax purposes. I mean this is just one type of a whole list of trusts. when we use for different reasons.
Okay.
And this is one we're using for tax reasons. And we're using it because A lot of times adult children They don't make good decisions with money, especially if they need the money. Um And they're not going to be happy with this trust. But they'll be happy with the trust 10 years after. You're gone.
because it would have left them in a much better situation than control over the money.
Okay.
Um And you know what? I'm just going to add is that this is a concern of yours, is leaving money. Your kids. Yeah. There's other kinds of trusts.
that will keep them out of their own way. There's also we can use life insurance. is we can set up life insurance. Yeah. then we can restrict the payouts of the life insurance.
so that it comes to them over us. That is real easy to do. with any type of life insurance policy is just say, okay, You know, these are the beneficiaries, but they can't have all the money right now. Maybe they can have 20% of the volume. In cash.
and the other 80% is going to be paid out under these terms. And it's just ironclad, and the money stays with the insurance company, and they just get a check like an annuity. for the rest of their life or so many years.
So there's all kinds of things we can do at a state planning. Yeah, all we're talking about today. with a see-through trust. that is more about taxes. But any trust is really, you're doing the trust because you want to control the distribution.
Right, in the If it's done through life insurance like that. The money's tax-free to begin with. I mean, the beneficiary receives the money there, they don't owe any taxes on that money. And that's the Yeah, that's the beauty of having that rather than IRA money is that's Spendable money, no taxes required. And again, if you Like you said, you distribute it over a period of time.
It really and so does the money when it's sitting in the life insurance policy like that continue to get interest? Inside the coffee. Sure it does. And you're going to have to pay tax on that. Interest component.
if it's spread over time. But yeah. Again, we've run out of time. Before we ran out of show, we want to remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com. If you go to cardinalguide.com, there you're going to find the seven worries tabs.
tab would be the estate planning and there you're going to find an amazing video along these same lines with the see-through trust. And of course, there at cardinalguide.com, you're going to find Hans's book, The Complete Cardinal Guide to Planning for Living in Retirement, and a workbook that's amazing that goes along and talks a lot about estate planning and that. And then, of course, the easiest solution for my book, just to contact Hans and Tom Page. It's all there at cardinalguide.com. Great show, Hans.
Thank you, and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and, unless otherwise stated, are not guaranteed.
Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Guail is designed to provide accurate and authoritative information with regard to the subject covered.
Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com.
Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the Workbook. Once again, for dozens of free resources, past shows, or to get Han's book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com.
