Feb 1, 2010 12:00 PM

, By James G. Blase & Mimi G. Sharamitaro

The modified accumulation trust offers the advantages of conduit and accumulation trusts — without their drawbacks

By James G. Blase & Mimi G. Sharamitaro

Recent private letter rulings issued by the Internal Revenue Service¹ have created concern among estate-planning attorneys regarding the best way to draft trusts that are intended as potential receptacles of IRA or other qualified plan benefits upon the death of the participant. This concern stems from the fact that, unless the trust is properly drafted, it won't be possible to stretch out the payment of the retirement benefits over the trust beneficiary's lifetime.

One alternative to ensure the maximum possible income tax deferral for the retirement benefits is the so-called “conduit trust” described in the final IRS regulations. The problem is that conduit trusts have numerous problems for most estate-planning clients. Another approach, sometimes referred to as the “accumulation trust” approach, has its own set of potential problems.