inhereited ira
client, over 70 1/2, has all 4 children listed as beneficiaries on her ira, sharing equally. she wants to modify this in a way so 1 beneficiary will receive a portion of the ira in a lumpsum upon her death(to compensate for financial help), and then all 4 children will share equally in the remaining monies. is there a way to do this without using a trust as the beneficairy, and can a trust do this also?
Permalink Submitted by Bruce Steiner on Wed, 2010-10-20 14:53
Yes and yes, though there may be better ways to accomplish her objectives.
Permalink Submitted by Alan Spross on Thu, 2010-10-21 00:44
If the facts and circumstances do not justify creating a trust, she can just leave the account as is. Upon her death, the appropriate beneficiary has every right to distribute their lump sum any time they wish, and the remaining beneficiaries can establish separate accounts before or after the large distribution as long as this is done by the deadline. The lump sum distribution will also satisfy any RMD not taken by the client before her death.
Note that the beneficiary taking the lump sum may inflate their tax bill considerably by taking the entire amount in a single year.
Another aspect to consider here is that if the lump sum beneficiary decides to take their distribution near a market peak, and then the market sinks the others could look at the balance that remains and think that they did not really get their 25% shares. But this could also work in reverse. If the children are not the types that understand value fluctuations and distribution of a large sum, then perhaps client should create two IRAs of 25% and 75% and name the beneficiaries accordingly.