Inherited IRA Question
I have a client that is one of three non-spouse beneficiaries of an IRA. The decedent named her trust (irrevocable – non-ira trust) as the beneficiary of the IRA proceeds ($1.3 million). The trust in turn pays out the distribution to the beneficiaries. The decedent passed away in January of 2009; is there a way to still set up an inherited IRA for the decedent’s remaining life expectancy not to exceed 15.3 years in order to avoid paying the entire income tax on distribution in 2009?
Thank You
Greg Dorriety, CFP
Optimum Retirement Advisors, Inc.
[email protected]
Permalink Submitted by Alan Spross on Tue, 2009-04-21 20:18
The first thing to determine is whether the trust was qualified for look through treatment or not. See Pub 590, p 39 for those requirements. Most trusts meet the requirements. If qualified, the RMD would be based on life expectancy of the oldest beneficiary of the trust, or the owner’s remaining life expectancy if longer.If not qualified, then the date of IRA owner’s death in relation to his required beginning date will determine the RMD options. Apparently, he died well after the RBD, so his remaining life expectancy should apply even if the trust is not qualified. RMDs for 2009 have been waived for owners and beneficiaries alike.
Why are you concerned about a lump sum distribution requirement? Hopefully, the trust does not specify such a costly distribution.
Permalink Submitted by Joseph Arsenault on Thu, 2009-04-23 17:05
alan, what about creating sub-trusts to qualify for the seperate share rule and let the beneficiaries use their own life expectancies? I believe PLR 200537044 is what is referenced.
Permalink Submitted by Bruce Steiner on Thu, 2009-04-23 22:43
Each child is likely to be a contingent remainder beneficiary of the other children’s trust (if a child dies without issue and without exercising his/her special power of appointment). So you’re probably back to using the oldest child’s life expectancy for each child’s trust.
For more on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf
Permalink Submitted by David A. Groenke on Tue, 2009-07-07 18:53
The reply by bsteiner refers to “without exercising his/her special power of appointment”. Is this an indication that inclusion of powers of appointment is no longer a concern in detrmining who the oldest beneficiary of a trust is – i.e.e potential appointees are disregarded?
Permalink Submitted by Bruce Steiner on Tue, 2009-07-07 19:27
I would assume that permissible appointees would be taken into account. See PLRs 200228025 and 200235038.