IRA with TRUST as BENEFICIARY
If a client wants a Trust as an IRA beneficiary (perhaps young children are the beneficiaries) is there any workaround to the rule that requires the distribution to be based on the age of the eldest beneficiary?
Would the workaround be setting up separate IRA’s with one beneficiary each or would there need to be language in the trust that establishes unqiue trusts upon death for each IRA recipient/beneficiary?
Permalink Submitted by mk foss on Wed, 2010-04-28 19:06
You have suggested the two possible solutions: 1. Is split the IRA into as many pieces as there are trust beneficiaries and name a trust for one beneficiary as the IRA beneficiary for that account. 2. Is to name 4 trusts as beneficiaries, one for each child. The trusts would have to be set up ahead of time – having one trust that splits into a trust for each child upon the death of the grantor does not work.
The other thing to bear in mind is that IRA beneficiaries can be changed at any time so once there is no longer a reason to name a trust as a beneficiary, the owner can change to name an individual directly.
Permalink Submitted by Bruce Steiner on Thu, 2010-04-29 02:53
Each child will probably be a beneficiary of the other childrens’ trusts. For example, if a child dies without leaving any children, the balance of his/her trust is likely to be added to the other children’s trusts. So most likely each child’s trust will use the oldest child’s life expectancy. But if the children are close in age, that won’t make much difference.
It doesn’t matter whether you create the trusts in the Will, or in a separate trust instrument.
It’s generally best not to divide the IRA during lifetime. There’s a chance that one will be end up being worth more than another.
For more on this, see my article on trusts as beneficiaries of retirement benefits in the March 2004 issue of the Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf