beneficiary is an IRA trust vs normal trust
What is the difference between an IRA trust and a normal irrevocable trust when someone dies and names a trust as the beneficiary?
If there are multiple beneficaries, can you split the inherited account and set up new accounts for each beneficiary in both instances?
If there an RMD required on behalf of the account owner, would the RMD be taken before distributing the funds to the beneficiaries in both instances?
Can eacb beneficiary in either instance set up a stretch IRA based upon their own life expectancy factor?
Any other differences?
Permalink Submitted by Bruce Steiner on Tue, 2009-12-22 03:58
Where a trust is the beneficiary of an IRA, the benefits can be stretched out over the life expectancy of the oldest beneficiary of the trust. This means that you have to make sure that no one older than that person can ever receive any of the IRA benefits that are received by and held in the trust. If you don’t want to subject the nonretirement assets to that restriction, then each beneficiary’s share of the IRA benefits will be held in a separate trust from his/her share of the nonretirement benefits.
For more on this, see my article “Trusts as Beneficiaries of Retirement Benefits” in the March 2004 issue of the Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf.
Permalink Submitted by Alan Spross on Tue, 2009-12-22 05:00
Bruce,
She might be asking about the difference between a “Trusteed IRA” where the trust is included in with the IRA contract and a trust capable of holding multiple types of assets.
Permalink Submitted by Bruce Steiner on Tue, 2009-12-22 14:15
It’s possible. But the term “IRA trust” is often used (sometimes as a marketing gimmick) to describe a trust that is intended to be the beneficiary of IRA benefits.
For why not to use trusteed IRAs, see my article in the September 2009 issue of Trusts & Estates: http://www.kkwc.com/library_cat/uf_trusteed_IRA.pdf.