On December 15, 2017, the Internal Revenue Service (“IRS”) issued Private Letter Ruling (“PLR”) 201750004. The ruling is noteworthy because the IRS permitted a retirement benefits see-through conduit trust to include a testamentary general power of appointment so that the beneficiary of the trust could have the legal ability to direct the balance of the inherited retirement benefit as he or she wishes upon his or her death. Powers of appointment in trusts are commonly used to provide the primary beneficiary of a particular trust with the power to direct the balance the trust’s assets (usually upon his or her death) without any adverse gift or estate tax consequences, but there has been concern whether the inclusion of a power of appointment in a retirement benefits see-through conduit trust would cause the inherited retirement benefit to have a shortened distribution period, which would result in accelerated (and unnecessary) income taxation. PLR 201750004 provides us with the answer that the inclusion of a power of appointment in a retirement benefits see-through conduit trust will not cause the distribution period of the inherited retirement benefit to be accelerated. This is very good news for clients who would like to leave their assets to their loved ones in trust (rather than outright) in order to protect assets to the greatest extent legally possible while preserving the opportunity for the best income tax results and while providing their loved ones with as much control and flexibility as well.
Written By: Mark Munson JD, CELA