For the possible disadvantages, see my article on trusts as beneficiaries of retirement benefits, in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf

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Depending upon the terms of the trust, it may be possible for the trustees to stretch the IRA over the life expectancy of the oldest beneficiary of the trust. If you want to stretch an IRA over a grandchild’s life, and the IRA is payable to a trust, then the children can’t be beneficiaries of it.

Conduit trusts rarely if ever make any sense. If the beneficiary lives to life expectancy, nothing will be left in the trust.

Living trusts are overhyped and oversold. In most states, they make sense only occasionally. Even where they make sense, leaving an IRA to a living trust can create lots of problems, without providing much in the way of benefits.

Alan: funny you should post my article exactly one minute before I did.
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safemoney wrote:

If beni on a IRA is a living trust

and a living trust has no birth date

is not the entire distribution taxable at the Living Trust rate

THEN it goes to the benis as outlined in LT?

Ex:
IRA = $500k
beni = Living Trust
client dies
Custiodian pays out to LT
LT (which now has a TIN #) gets a 1099
LT pays tax on $500k at flat trust rate (@50%)

if this is not the case, why ever the need for a IRA conduit trust?
if this is not the case, why do we bother w/ kids as benis?

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The trustee may have been able to stretch the distributions out over the life expectancy of the oldest beneficiary of the trust. You assumed that this option was not available, which may have been the case, but you didn’t provide enough facts to be able to tell whether this was or was not the case.

If the trustee collected the money, it becomes taxable.

If there is a spouse, it may still be possible to get the proceeds to the spouse, who may be able to roll them over — see my article on this in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf. If that option is not available, and the trustee could have stretched it out but didn’t, the beneficiaries may have a claim against someone.

The lawyer handling the estate can provide all of the details as to the tax consequences.

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With no review for 19 years, this trust would not have the provisions to be qualified for look through treatment. However, since the IRA owner passed after her required beginning date, the trust is still allowed to take RMDs over the remaining life expectancy of the decedent owner, however short that may be. An 86 year old would have a remaining life expectancy of 7 years which at least provides some protection against maximum tax rates, depending on other assets. See Pub 590, p 37, “Beneficiary Not an Individual”. For the year of death, the owner’s original RMD requirement must be fulfilled.

The IRA should contain required provisions of the 2002 IRS RMD ruling to allow the RMD as stated. As for the tax rate, depending on the trust provisions, the income may be able to be passed through to the trust beneficiaries to be taxed at their respective rates.

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