See Through Trust For IRA Beneficiaries

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Well, welcome to Finishing Wealth today with certified financial planner, Hans Scheil. Today, we're going to throw a word at you, I had never heard before today, see-through trust for IRA beneficiaries. And I think when we get into this, you're going to understand that the idea of a trust and an IRA have all sorts of hidden snares, like things that, man, you really need to be aware of if you're thinking about a trust and an IRA. And so I couldn't help but think of Psalms 91-3, how God is looking out for us, it says, Surely he will deliver you from the snare of the fowler and from the perilous pestilence. In other words, there's a lot of hidden things out there that we wouldn't know if God wasn't looking out for us. So just maybe today you're listening because God's looking out for you and you were thinking about a trust with your IRA, there's things to think about. And I'll tell you, that word is going to come in very important to you. It sure is to me, as I begin to understand what it means to see, to have a see-through trust, Hans.

Hans Steenhoek Okay. And before I define what one of those, let's just talk about trust in general. I have a lot of people that come to me and say, I need a trust.

So tell me about that. And I'd, you know, or I've had this trust explainer, my brother-in-law has a trust, and I want to get one of those. And then, you know, when I dig a little deeper, I find out that people have been to a seminar somewhere. And they've had a room full of 30 people, and all 30 people are explained the same trust, essentially, and then sign all your money into a trust for all these reasons.

And I'm not real thrilled with that. But one big mistake that a lot of these presenters make when they're talking about trust is they tell people to, you know, put all your money in here to protect it. And when you take most people, the extent of their money, most of the time is 80, 90% of it is in an IRA or a 401k. You know, people might have a million and a half dollars of net worth. And, you know, 900,000 of it is an IRA 150,000 is in cash.

And the other 450,000 is equity in their home. And so a trust is not going to work very well. If most of them because you just you can't put your money in a trust your IRA money while you're living. Okay, you just you can't do that you'll create a terrible tax situation.

So I've done other shows on that. So what we're talking about today is a special kind of trust. And it's what the IRS calls a see through trust for IRA beneficiaries. It's a see through trust so that you can when you die, you can leave your money in trust your IRA money. And that trust is effectively the beneficiary and then the beneficiaries of the trust are probably your adult children, sometimes your spouse.

But you know, those are beneficiaries and beneficiaries that are people, as people related to you, get better terms in terms of their distribution rules and regulations than an entity like a trust would much better tax thing. So, you know, Robbie, when we were preparing for the show, you had some real questions that you asked me. So I think for the benefit of our audience, we ought to just start over and have you asked me some questions, even from a point of like, what in the world are we talking about here?

That was exactly what you're talking about Willis. So, you know, I was curious, I mean, the term see through, I mean, I understand, I've heard the word trust. And we've talked about it on the show many times. But I've said, what's the difference between a see through trust and a regular ordinary trust? What is the word see through getting at? Okay, the see through is getting at, we're going to see through the trust. And what we're going to see through or who we're going to see through is the beneficiaries. So let's just, let's think of a situation, you got Mr. Big Bucks here that has a big huge IRA.

He hasn't made any of it wrong. And he's trying to keep he's just been accumulating it. And then when we explain to him that he's created a tax bomb, he's going to pass away, leave his children, leave his children, maybe just one of his children, his children are very responsible for money. And so they're going to blow the whole million and a half dollars up if they find out that they got to pay taxes of 700,000 or $600,000 to get at the million and a half, or you pay taxes of 700,000 and then I get 800,000 in cash, you know, an irresponsible adult child's going to say send me a check. And so with a properly set up trust, the adult child who is acting like a child is not going to be able to get all the money and make those decisions, the trust itself is going to limit his or her distributions to the amount required by law so that they're going to be forced to take advantage of the tax advantages, they're not going to blow all the money at once or blow it up. Does that make sense?

Right. So to get back to the see through part, essentially, the trust is an entity. But obviously, a beneficiary is a person, right? And so you want to make sure that that person has access to these funds, because that's the idea is that I want them to have them, but I want them to have them, but I want them in a controlled way, which applies to a lot of different things that we're going to talk about later as far as, you know, what those, you know, special needs children and things like that. But the idea of the see through part is we get, you know, we get through the IRS code part talking about you can't have an entity, you know, that's a beneficiary. But in this case, we're going to look through the trust to the beneficiary, right? Yeah, I mean, when people ask me, they're not asking for a see through trust, they're just saying, I want to leave my all my assets in trust, because I don't want my kids blown them. Or sometimes people after they listen to me talk about what happens when somebody leaves a big blown up IRA, pre tax IRA to the next generation, and how they'll pay all the taxes at once, you know, have a million and a half dollar income in one year, just to get it to, you know, the net after the tax, and then they'll just go out and blow the money. Somebody will listen to that explanation, say, boy, I sure don't want that my kid will be the first one in line to do that.

So how can we set up something to protect that from happening? Well, this is the vehicle. So when I, when I show this to people, I spend the first half of the conversation, showing them how this works, and how we're going to set one up, and I spend the second half of the conversation, talking about doing it.

Because, yeah, because it's, you know, I mean, I got the disadvantages right in the video and on the board. These are complex. They're expensive. You know, they have tax implications of doing this, and the beneficiaries must qualify as eligible designated beneficiaries. There's a whole bunch of difficulties in doing these that I won't say that I won't do one, but I'm going to be very clear with people of the downside of doing this. But then some people still want to leave their IRA beneficiaries, they want to leave that in trust, because they want somebody else making the decision that has a more thoughtful head on them than they think that the adult children are going to be. So that's what the customer wants, that's what the customer gets. Now, where I have taken a keen interest in this is when I have people, we're going to call them case studies, who, you know, we've gone through and we've helped people, and they have a special needs child. And so now we're setting up a special needs trust, and we're setting this up to protect the adult child's government benefits, I mean, so that they'll still, after, you know, their mom or their dad or both of them has been taking care of this child who is now 30, 35, and then they're looking ahead and they're saying, when I die, what, you know, what's going to happen to my kid here that I've been paying all the bills, and then they get this government assistance, but I want them to be sure they're taken care of? Well, a special needs trust, properly drafted, and done, you know, it's going to set up so that they can still have a trustee providing for their well being. And then it can, you know, then it can also do all the money in the special needs protects their government benefits, so they still get those.

And that's a big becoming a larger part of our practice where we have people calling us that are in this situation. But then what do you do with the IRA money? Because when you leave the IRA money to this special needs trust, it's going to create a big tax problem right off the bat right at your death. And so that's where these trusts, so now we're, now we're setting up two trusts, we're setting up a special needs trust. And then beside that, we're setting up a see through trust. I'm not doing this, an attorney is, but I'll get you to the attorney that knows what they're doing with these.

We're setting up the see through trust, and we're making it the beneficiary of the IRA. Right, which is just an absolutely beautiful thing. And I would point out that maybe you're listening to this and you know, a family right that has a special need child that's getting up there 30 and 40. I, you know, I taught that class for years. And I understand the needs of that family and the concerns that they have, you know, they've tried. And those government benefits are huge. When it comes to actually, you know, if you if you're not familiar with it, you know, they get disability. And so, you know that that's a big part of the income that that family needs to provide long term care for that for that individual. And wow, and so you don't want to your your money that you're giving them to make those government benefits go away.

Well, exactly. And, you know, this is written, this is even more touchy than IRA beneficiaries, that are in perfectly good health that the person thinks are going to squander their money. Now we have this special needs child, who is an adult child, who very much is going to need this money.

And for the rest of their life after you're gone, or you're the parents that have been taking care of them, and we just want to remind you that this show is brought to you by Cardinal guide at cardinal guide.com. That's where you're going to find the seven worries tab. And today, we're probably is this going to be under IRAs? This is under IRAs.

That's correct. It'll be under the IRA tab. And there you're going to find the see through trust video with the very things he's talking about, including the show notes. And again, the contact information to get up with Hans, it's all at cardinal guide.com, as well as Hans's book, the complete cardinal guide to planning for and living in retirement. We'll be right back with a lot more on see through trust for IRA beneficiaries investment advisory services offered through Brookstone 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. Well, welcome back to Finishing Well with certified financial planner, Hans Scheil. And today's show, we're talking about a see through trust for IRA beneficiaries.

And that's kind of a mouthful. Hopefully, if you heard the first half of the show, you know a little bit more about it, what a see through trust is. But really, we want to get into more. There's need advantages for certain small groups of people. But but also just be aware that every little piece requires, you know, detailed planning.

And again, why we really, you know, would say, man, what an opportunity to get up with Hans and his group to help you. Okay, so you cannot transfer your trust, transfer your IRA to a trust, while you're alive. Okay, so while the IRA owners alive, it needs to be in your name under your social security number. And you can do what you see fit with it. You can take distributions when you they're appropriate.

You can take them when they're required. You can name beneficiaries, all that sort of stuff. And you must keep those rights or it stays in your name while you're alive.

Now, what if you don't like naming your beneficiaries just by name? And you, you know, you're you could see your adult children, either squandering this money, or you could see them paying a bunch of taxes all at once just to get it what's left. So they can spend it. And perhaps you want to control how your money is distributed after your death.

And so that's what has some interest in coming to me and saying, Well, how can we do this? How can we control how much they get? Comply with the tax code, take advantage of the tax code, but yet prevent them from just robbing the whole thing. And you can do that through a see through trust. Now the word see through trust through trust. What we're seeing through here is we're seeing through the trust to the beneficiaries for the tax benefits that come to a beneficiary. Okay, and what we're talking about here, and that's on other videos where we talk about the different classes of beneficiaries. And where I've used these things the most is with special needs families that have a special needs adult child, and they're wanting to leave the IRA money to the special needs kid, but if you leave it by beneficiary, that's going to kick them out all their benefits. So we can set up this see through trust to leave the IRA money only. That's the only place you got to worry about this is with IRA money, because, you know, the kids are going to fall under a lifetime stretch, or the 10 year rule, and they can take advantage of all that or be actually forced to take advantage of all that through the trustee and with the trust.

So, and I'm doing this show with now because I just want to talk about that this thing exists. So you can do this in, you know, the see through trust, and it's, but it's going to cost you some money. And it has tax implications.

You know, so you might want to you might want to think twice about doing this. But if somebody is really sincere about leaving their IRA money in trust, and then they still want their kids to get the tax benefits of stretch of being a beneficiary, but yet they don't want the kids in control of the money, then this is the thing you need to do. Right, which leads back into that conversation we've had many, many times, but I don't think you can have it too many times of the importance of understanding and keeping up to date, your beneficiaries, and what kind of beneficiary they are from an IRA standpoint.

Right homes? Yeah, well, if we set up one of these, you know, now you're, if you just have one child, john smith, and john smith is the beneficiary of your IRA now, but you're going to set up this trust, then you're going to change the beneficiary to, I don't think you're going to put the word see through in the name of the trust, but at the see through trust of George Smith, deceased, such and such, or where you won't know that when you're playing with the beneficiary, but you're going to have a name on this trust. And you're going to make the trust the beneficiary, instead of the kid himself. And then the kid, or the adult child is going to be the beneficiary of the trust.

And if it's properly set up see through trust, they're going to take advantage of the stretch rules that come to a adult child. With the stretch rules being, again, for those who are may not be familiar, like me, that, again, I think what you're talking about is that they can keep the money in for some period of time before they have to take it out. Correct.

Correct. They're going to fall either under the 10 year rule, which means they got it has to be emptied and paid to them over 10 years, or by the end of the 10th year, or they're going to be an eligible designated beneficiary. And then they can stretch it out over their lifetime.

And they could possibly have some early distributions required. And so we're going to be available when people come to us to consult on all those tax benefits. And we're going to put you with the attorney that specializes in this stuff, because a lot of attorneys, I've quizzed them on see through trust, you know, they tell the client, yeah, we know what those are, we put an IRA, we do it all the time. Okay, so now walk me through this when I'm talking to them. And I mean, you're going to need to go to a certain kind of attorney. And before you go to that attorney, you're going to have a good thorough conversation with me, because I'm going to want to make sure that you really want this thing. Okay, because it does add a layer of complexity, it's going to cost you money, it could have some tax implications, you're going to have to review it regularly, and they could change the tax rules again. And then you're going to have to change these.

And hopefully that change will happen before you die, you know, where you could still change these things. So this is just a way to get around here where you can leave money in a trust from your IRA, and not have to pay the taxes all at once, and have a trustee part and parcel it to your children. Right, that brings up the other point and the aspect to a trust that I think, you know, a little bit of explanation goes in there. So, you know, let's say that I'm in this situation, and I've got a special needs child, and I'm like, man, this is something I've worth it to me to pay a little extra tax and pay for the trust to make sure they're taken care of, they don't lose their, their government benefits. So how do I pick out the trustee?

What are the trustee's responsibilities? And is that the attorney? Well, I mean, so we've got the special needs kids, no, it's not the attorney, typically, it could be.

But typically, it's a relative. And, you know, like this one family that I have, they have six other children. So, you know, there's seven children, or maybe it's six children, there's five other children, they have six children, they have five other children. And then, specifically, one of the five is going to be the trustee.

The other one of the five, one of the five is going to be the guardian, those aren't the same two people. And these people have significant wealth. And they are going to compensate those folks. So they have the benefit of this kid's brother or sister, I think it's two sisters in this situation, are going to, that's who the trustee is now a lot of this other family that I deal with, only has one child, and it is this special needs child. So they have identified the person, and they're going to, both all these people are going to be paid. But they've identified somebody in the community that's looked after this kid. In fact, they're going to have him move into a group home at some point, that's run by this person. And that's going to be the trustee. So there's, it's a person that has an interest. An alternative to that would be a relative, but you don't want a relative your same age, like a cousin would be a great or very responsible cousin would be and then you can get a corporate trustee as well. So you can hire a corporate trustee and we have some clients doing that as well. So there's, there's all kinds of options, but it really needs to be stopped and thought through.

Exactly. As you can tell, and that, you know, in my own experience, that's normally the direction they that folks go in that situation is to lean on a group home somewhere to make sure that there's people as, which again is helpful to have the money, but there's people who are actually gifted into being able to take care of the, you know, when you've taken care of them all your life and they've lived at home, you know, you developed all those things, but you know, all that stuff goes into the equation. And I think that's all the more reason that it's, it's really helpful if you know a family or something that's in this situation to make sure they're aware of Cardinal guide, right. And cardinal guide.com, how to get up with Hans. Cause you know, clearly God's given you this window of opportunity to help people with this really special sort of thing.

Oh yeah. I mean, and it's just, so what we're doing for this family with the one child is most of their wealth is in an IRA. And fortunately they've developed a good bit of Roth IRA through our advice. And we've worked with them for three or four years, but now that's the money we're going to put in the see-through trust. And that what's going to ultimately get into the special needs trust. So we're going to have two trusts for them.

And, um, it's complicated and it is just, it taxes come into play because you don't want the special needs trust, you know, eating up with taxes over time either. Exactly, exactly. But it's still, you know, it's, it's, it's neat to show the different, you know, vehicles and opportunities for people that have, you know, a certain need, which gets back to why we don't have the cookie cutter approach at Cardinal. Well, yeah. And this thing is also for people that really want to, they just see their kid as blowing up this money at once.

And so that you could have a kid that's not special needs an adult child, but they're, they've got a level of irresponsibility or maybe they've got a problem with their spouse or their spouse's financial things. And so you can just set this up. So we want to remind you, of course, this show is brought to you by Cardinal guide, cardinal guide.com. And there you're going to find the seven worries tab. And of course the video on this whole idea is the special needs, excuse me, see-through trust for IRA beneficiaries.

And again, it's at the IRA tab at cardinal guide.com, as well as contacts, contact information for Hans and his book, the complete Cardinal guide to planning for and living in retirement. And so by all means, you know, if you've got something special like that, whatever that may be, I wouldn't hesitate to call Hans. Thank you, Hans. Thank you.

And God bless you. The opinions expressed by Hans Shile 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 or not guaranteed past performance can not be used as an indicator to determine future results.

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