Contingent Bene’s – can owner require stretch IRA’s
Hi all,
A maried couple “client”, has two daughters and two grandkids. They want to leave 40% to each daughter and 10% to each grandchild (minors age 9 & 2).
The daughters are spendthrifts and have had alcohol addiction problems in the past. He does not want to lose the tax benefits of his IRA by transferring it to a Trust (after or if his spouse/primary dies).
Can he require the contingent beneficiaries only be allowed to take their inherited stretch IRA RMD’s and not be allowed to touch the principal?
Thanks,
Joe
Permalink Submitted by Al Fry on Sat, 2007-12-29 03:01
Keep in mind the contingent benes go away when the IRA owner dies, and the primary bene is still alive (unless there is a disclaimer). In any event, even if one could restrict w/ds to RMDs, the account will be fully depleted at the end of the Life Expectancy of a non-spouse bene. Some fixed annuities can restrict w/ds to RMDs. The SEC laws do not allow such restriction for variable annuities (at least such restrictions are not enforceable). A properly drafted “see-through” trust may be their best bet.
Permalink Submitted by Bruce Steiner on Sun, 2007-12-30 15:53
He could leave their shares of the IRA to them in trust rather than outright. See my article on this subject in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf