Inherited IRA trust
I have an inherited ira trust and the trust had to take the minimal distribution which was passed on to me as the beneficiary of the trust. To complicate matters there is also an estate tax deduction that I get to use until it runs out but who does the deduction go to the trust or me(befeficary of trust). What should be done for 2012 tax per inherited IRA trust as well as me? ie.. 1041 and a k-1? Who rights off the estate tax deduction?
I have asked the lawyers but have received multiple answers.
Tks for the help in advance as I just want to make sure I do this correctly.
Permalink Submitted by MIke Davis on Thu, 2013-03-14 01:42
I wanted to add that this was a traditional IRA. Any help is appreciated.
Permalink Submitted by Bruce Steiner on Thu, 2013-03-14 02:13
Income taxation of trusts can be complicated. At the risk of oversimplification, iIf the trust is required to make distributions (which is generally not a good way to design the trust), then the amounts the trust is required to distribute are deductible by the trust and taxable to the beneficiary, regardless of whether they were in fact distributed during the year. If the trustees have discretion as to distributions (which is generally the better way to design the trust), then the amounts actually distributed are deductible by the trust and taxable to the beneficiary. The income tax deduction for the estate tax follows the income. If the lawyers keep changing their mind, you may want to consult with a lawyer who is more familiar with tax and trusts and estates law.
Permalink Submitted by MIke Davis on Thu, 2013-03-14 17:27
Thanks for getting back to me.. I was leaning towards what you stated so you have confirmed what needs to be done. With regard to lawyers.. can you recommend any in the philadelphia region. YOu said.. ” the trust is required to make distributions (which is generally not a good way to design the trust), “.. Isnt this a requirement to stretch the IRA?
Permalink Submitted by Alan - IRA critic on Thu, 2013-03-14 19:07
Not a requirement. The IRA stretch applies whether the trust accumulates the IRA distributions or passes them through to the trust beneficiary.
Permalink Submitted by mk foss on Thu, 2013-03-14 03:41
As Bruce indicated the trust agreement must be followed when you are a trust beneficiary. The deduction for estate taxes is claimed by the beneficiary of the IRA as RMDs are collected. If the trust is required to distribute the RMD to you, it seems that the estate tax deduction would follow the income. If there is a partial distribution of the RMD, then part of it will be taxed to the trust and the balance will be taxed to the beneficiary.