Revocable Family Trust as IRA Beneficiary
Husband, born July of 1935 passed away in 2007. Revocable Family Trust is named as IRA beneficiary (Grantors were Husband and Wife). Wife is now sole trustee and two children are beneficiaries of the trust (Trust is in SS# of sole trustee–still revocable). Over who’s like expectancy are RMD’s to be based? (I don’t think Wife is interested in disclaimers, etc. to try to make her own). Which table is used and what is the factor for 2010? (Trustee wife is age 73 this year) Thanks,
Tim
Permalink Submitted by mk foss on Wed, 2010-05-19 23:37
The measuring life for a trust as beneficiary is based on the age of the oldest beneficiary – if the wife is a beneficiary as well as a trustee, her life would be used. If not, the life expectancy of the oldest child would be used. The IRA stays in tact and the RMD is transferred each year from the IRA to the trust. The trust agreement dictates what happens next. If the trust agreement does not define income to include RMDs from IRAs, you need to look to the state law to see how much of the RMD can be distributed and how much is retained and taxed to the trust.
Permalink Submitted by Alan Spross on Thu, 2010-05-20 01:56
There is a problem here if the trust is actually revocable. One of the requirements for a trust to receive look through treatment is that the trust becomes irrevocable upon the death of the owner. If the trust remains revocable, the trust is treated as a non individual beneficiary and would trigger the 5 year rule for death prior to the RBD.
In addition, if the wife is not the sole trust beneficiary, the possibility of a spousal rollover is also eliminated. There are also other requirements for a trust to be qualified, so the first order of business here is to determine the status of this trust.
Permalink Submitted by Tim Golden on Thu, 2010-05-20 14:30
The trust is, in fact, revocable, and is still in the social security number of the spouse trustee. In terms of the beneficiary status, I haven’t seen the trust doc but since she is the trustee, I suspect she is not listed as beneficiary. Evidently, their attorney recommended that they name their living trust as beneficiary of the IRA’s. Since the deceased was already taking RMD’s, can the spouse take distributions over the life expectancy of the deceased subtracting 1 for each year after the year of death?
Permalink Submitted by Alan Spross on Thu, 2010-05-20 18:12
Yes, since the IRA owner passed after the RBD, distributions to the trust can be based on the deceased’s remaining non recalculated life expectancy. Therefore, at least the 5 year rule is avoided.
Permalink Submitted by Bruce Steiner on Fri, 2010-05-21 04:12
If the wife can revoke the trust, shouldn’t the IRA be treated as hers? If she’s 73, why wouldn’t she want to roll it over? If she can revoke it, it will be included in her estate in any event.