IRA TRUSTS
When someone dies with a specialized IRA Trust as the beneficiary of their IRA, what are the mechanics after they die? Does the IRA become a beneficiary IRA and a trust is established to receive the distributions from the IRA?
When someone dies with a specialized IRA Trust as the beneficiary of their IRA, what are the mechanics after they die? Does the IRA become a beneficiary IRA and a trust is established to receive the distributions from the IRA?
Permalink Submitted by mk foss on Thu, 2010-06-17 17:03
The trust would be established before the IRA owner’s death but not funded until he/she passes away. The trust is the beneficiary and receives RMDs based on the age of the oldest trust beneficiary. The trust agreement should specify what happens to the RMD after the trust receives it – a conduit trust will distribute all of it and there are variations if the trust is a Bypass trust for example.
An income tax return will be due for the trust by April 15 each year – the amounts to be reported as income from the trust will show up on a Schedule K-1 attached to the trust return.
Permalink Submitted by Bruce Steiner on Thu, 2010-06-17 20:52
A conduit trust (in which all the trustees have to pay out to the beneficiaries all of the distributions they receive from the IRA) rarely if ever makes sense. If the beneficiary lives to life expectancy, which will happen 50% of the time, nothing will be left in the trust. Any protection the trust might have offered against creditor, predators, spouses and estate taxes will be lost.
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.