IRA to a Trust
If an IRA is paid out to a trust, which the husband was to be the benefactor of the trust…is there a way not to pay the tax in one year?
We have a situation where the husband is being told that the taxes must be paid in one year…
Mark
If an IRA is paid out to a trust, which the husband was to be the benefactor of the trust…is there a way not to pay the tax in one year?
We have a situation where the husband is being told that the taxes must be paid in one year…
Mark
Permalink Submitted by Alan Spross on Tue, 2009-04-07 00:58
Mark,
Taxable income must be reported when the IRA funds are distributed. The key is how much of the IRA is distributed to the trust, when the IRA owner passed relative to the RBD, and whether the trust is qualified for look through treatment. If the IRA is not required to distribute more than an RMD, the taxes would be limited to the RMD. Whether this is possible depends on the foregoing variables.
Permalink Submitted by Mark Schlipman on Wed, 2009-04-08 12:45
Alan,
What questions need to be asked to the CPA and/or the attorney? I don’t think either one is extremely insightful into these issues.
Mark
Permalink Submitted by mk foss on Wed, 2009-04-08 20:39
Normally when a trust is the IRA beneficiary, the IRA remains intact and the trust takes required minimum distributions based on the life expectancy of the oldest trust beneficiary. If the entiire IRA was withdrawn and put into a trust account it is taxable in full.
You need to find out if the funds are still in the IRA and if they are, the identy of the trust beneficiaries. This is assuming that the trust qualifies as a “see through” trust as Alan mentioned. Almost all trusts will qualify.
Permalink Submitted by Bruce Steiner on Sun, 2009-04-12 03:26
If the lawyer is not familiar with these issues, he may want to consult with one who is.
If the husband is a beneficiary of the trust, the lawyer should look to see whether it’s possible to get the IRA to him so he can do a rollover. For more on this, see my article in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf .
If not, then the lawyer should advise him of the pros and cons of possibly disclaiming his interest, if that would permit the benefits to be stretched out over the children’s lifetime. For more on this, see my article in the March 2004 issue of BNA Tax Managment’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf .