IRA Trust Beneficiary and Stretch Strategy
I have a case in which the IRA owner who was 83 yr and now deceased named her trust as the IRA beneficiary. I believe we can meet the “see through” requirements in order to stretch the IRA but I’m not 100% certain on one of them. Although all trust beneficiaries are identifiable, one of the trust beneficiaries has an age restriction prior to receiving his percentage [b]outright[/b]. The trust agreement allows for income distribution in addition to principal for health, education, maintance and support until age 40 and the beneficiary is currently 30yrs. old. In most PLRs I have read, the trust beneficiaries had already met the age restrictions. It is my understanding we can still meet the identifiable requirement and stretch the IRA but we would have to distribute the IRA to the trust based on the oldest IRA beneficiaries and then ultimately to the trust beneficiary via a K1.
o My 1st question, is my understanding correct ?
o As a follow up question, the trustees feel the beneficiary is responsible and would prefer to remove the age restrictions and make the distribution outright in order to stretch the IRA and not incur the cost of trust administration. Can this be done?
Thanks
Louis
Permalink Submitted by mk foss on Tue, 2009-12-15 23:42
When a trust is the beneficiary and it gets split upon the death of the IRA owner, distributions are made using the life expectancy of the oldest trust beneficiary. I don’t see that the age restrictions for one beneficiary will cause a problem if income is being distributed. If income was accumulated within the trust, you may have to look to an older beneficiary to measure RMDs if there is an older contingent beneficiary who could become the primary beneficiary.
To terminate the trust before the time specified in the agreement, you’d need some sort of legal reformation. You’d need to consult a local estate planning attorney to see if that is possible.
Permalink Submitted by Bruce Steiner on Wed, 2009-12-16 22:58
You may have to consider the contingent beneficiaries. Even though the income has to be distributed currently, the required distributions could exceed the income, so that distributions from the IRA could be accumulated in the trust, and could go to someone else if the primary beneficiary dies before age 40.