Stretch IRA with “See Through Trust”
Suppose that an IRA owner names a “see through trust” as beneficiary of his IRA with his wife, who is less than 10 years younger than he, as primary beneficiary and his children as co-secondary beneficiaries in order to protect the IRA from creditors of his wife or children. Suppose that he dies first, while taking RMDs, followed by his wife, who is survived by both of their children at her death. While the wife if receiving RMDs, whose age is used to calculate them: his or hers?
I think it is hers with the Uniform Distribution Table, i.e. the table that begins with age 70 and a 27.4 year life expectancy at such age as divisor, and that the trustee uses her attained age that year in each succeeding year to calculate her future RMDs. After her death, whose age is used to calculate RMDs: hers or the oldest child’s?
I think it is the oldest child’s with the Single Life Expectancy Table for Inherited IRAs, i.e. the table that begins with age 0 and a 82.4 year life expectancy at such age as divisor, and that the trustee subtracts one (1) from the prior year’s life expectancy of the oldest child in each succeeding year to calculate her future RMDs, rather than “sliding down” the table in each succeeding year, as in the case of the original IRA owner or his wife.
Additional Questions:
1. Exemption from RMD from profit sharing plan for participants, who are not 5% owners – Did such participant have to have signed a form requesting such exemption and filed it with the plan administrator by 12-31-83 (or was it 12-31-84)?
2. If the wife and children are all primary co-beneficiaries of the trust, rather than the wife primary beneficiary and the children co-secondary beneficiaries, then whose age and which table is used to calculate RMDs on his death and then on her death?
3. If the wife and children are all designated beneficiaries of the IRA, then whose age and which table is used to calculate RMDs during the owner’s life, then upon his death and finally upon his wife’s death, or, if she predeceases him? I think that the Uniform Distribution Table for joint lives is initially used, but I am unsure as to what happens upon the deaths of the owner and his wife.
4. Can a trust be used with the facts of Question 3 to obtain smaller initial RMDs, the stretch and creditor protection?
5. Can an immediate annuity from a insurance company be used, with or without a trust, to obtain smaller initial RMDs, the stretch and creditor protection, and, if so, the how?
Permalink Submitted by mk foss on Wed, 2011-01-05 22:51
When the spouse is the beneficiary of a “see through trust” IRA beneficiary, RMDs payable to the trust will be based on her life expectancy in the year after the death from the sinlgle life table. If the spouse survives the IRA owner, contingent beneficiaries lives are not used. When the spouse passes away, the remaining trust beneficiaries will receive distributions based on the remaining life expectancy as determined when the original owner died.
In order for the spouse to use the uniform table, she must be named directly as the beneficiary. If she’s the beneficiary, she can roll over the benefits; the rollover makers her eligible to use the uniform table because the IRA is treated as always having been hers. The maximum stretch occurs when the spouse is the primary beneficiary who rolls the benefit over and names the children or trusts for the children as her beneficiaries. If a trust for the children is the beneficiary of the spouse’s IRA, the life expectancy of the oldest surviving child is used for RMDs after her death.
Regarding the additional questions:
1. The RMD exemption relates to a law change in 1997; the signed form you refer to was based on an old old law – possibly TEFRA in 1982. No special requests are needed under currently law.
2. The oldes beneficiary of a see-through trust is the one whose life expectancy is used for RMDDs first on his death and then for the remaining payments at ther death. There is no change in the life expectany used when she passes away.
3. If the wife and children are all designated beneficiaries, the IRA can be split by 12/31 of the year after the owner’s death so that each can use their own life expectancy based on the single table. The wife could roll her portion over and use the uniform table – no beneficiaries can use the unform table, it’s just for owners (or surviving spouse’s who become owners with a rollover).
4. No.
5. I don’t think so.