Determining RMD for Beneficiary IRA accounts
We have a client that passed away at age 62 this past February that had an IRA valued at $290k as of 12/31/10. The beneficiaries are her two adult children, daughter age 40 and son age 41.
The daughter established an IRA-BDA in April and received 50% of the mom’s account. She takes a monthly withdrawal of $1700 gross and received the first payment in April. For 2011, she will receive $15,300 gross.
The son is disabled. We were not able to establish an IRA-BDA for him right away, as his portion of the mom’s account needed to be put into the name of a Trust on his behalf and not held directly in his name. The Trust did not exist when the mom passed away, and was established by the daughter in late August with an attorney; the daughter is Trustee. We are now in the process of having the son’s portion of his mom’s IRA transferred to an IRA-BDA held in the name of his Trust.
Do both beneficiaries have to take RMD from their IRA-BDA accounts?
If one of the beneficiaries (the daughter) withdraws an amount that exceeds the RMD required for the value of the mom’s account, would the son also have to take RMD?
Do the daughter’s withdrawals truly cover the RMD amount for her and her brother combined?
Do we use the mom’s account value as of 12/31/10 to determine what the RMD amount should be? Are there other options on what date to use, such as the date of death?
We did the following calculation.
12/31/10 account balance $290k / son’s Single Life Table factor 42.7 = $6791.57 RMD
If this calculation is correct, then the daughter’s withdrawals for the year more than cover that and the son should not be required to also withdraw funds. Is that accurate?
Permalink Submitted by Alan Spross on Sat, 2011-10-22 00:24
Apparently, the son now has a self settled special needs trust (SNT, or d4a trust). The IRS issued PLR 2006-20025 indicating that a properly drafted SNT can be treated as a qualified trust for look through purposes. That would allow the trustee to take RMDs based on the son’s single life expectancy and his attained age in 2012. If that would be age 42, his first divisor would be 41.7 and it would be reduced by 1.0 each year thereafter.
Each beneficiary must take an annual RMD starting in 2012, so the first RMD can be delayed until the end of 2012, and is based on each BDA account value on 12/31/2011. These BDA accounts are not affected by each other going forward in any way, including any RMD infractions. If one beneficiary exceeds their RMD, the credit cannot be applied against the other beneficiary’s RMD.
The only other RMD option would be the 5 year rule since Mother passed prior to her RBD. But that is rarely an option to be considered. If one beneficiary opted for that, the other is not affected. Under the 5 year rule there is no RMD required in any particular year, but the entire BDA must be distributed no later than 12/31/2016.
Your questions seem to point to a 2011 RMD, but there is no RMD until the year following owner’s death, ie 2012. And each BDA satisfies it independently of the other.
NOTE: I made some assumptions about the SNT that may not be correct. Please verify the situation with the trust attorney. By all means that trust should be drafted to meet the requirements of a qualified trust per Pub 590, p 38. Possibly, PLR 2006 20025 needs to be provided to the IRA custodian.
See Q&A 2 of the following. Note the requirement of the state as beneficiary up to the amount of benefits received:
http://advisor.morningstar.com/articles/printfriendly.asp?s=&docId=12631…