Look Through Trust as the IRA Beneficiary
My mom passed away in 2013. The only beneficiary of her IRA was her trust, which we believe is a look through trust. The beneficiaries named in the trust are my sister and me.
Question #1: May we split my mom’s IRA into 2 separate inherited IRA accounts(one for my sister and one for me)?
Question #2: Should we have an attorney review the trust agreement to confirm that the trust is a look through trust and meets the all 4 of the requirements of a look through trust?
Permalink Submitted by Alan - IRA critic on Mon, 2013-11-04 23:03
If the trust allows it, the trustee can have separate inherited IRAs established to replace the trust. The IRA custodian can normally determine if the trust is qualified, but the trustee must meet certain notification requirements to the custodian. The RMD divisors will be based on the oldest trust beneficiary (oldest sister) and the separate inherited IRAs will not change that.
Permalink Submitted by Jean Frank on Mon, 2013-11-04 23:39
In your response you had indicated a conditional statement: “If the trust allows it, …”. It what ways may it not allow it? Must the trust explicitly state that splitting the funds is permitted?
Permalink Submitted by Alan - IRA critic on Tue, 2013-11-05 00:16
Many trusts are established with the purpose of limiting beneficiary access to retirement accounts and other assets. As such, the trustee may be required or have the authority to accumulate assets in the trust, ie the RMDs would be distributed to the trust, but the trustee could limit the distributions from the trust to the beneficiaries. Accumulation of RMDs in the trust is not a factor either way in whether the trust is qualified for look through treatment.
Permalink Submitted by Bruce Steiner on Tue, 2013-11-05 04:01
In the original post, why would anyone create a trust to receive IRA benefits and then have the trust immediately terminate? If the IRA owner wanted her children to receive their shares outright, she could have simply named her children as the beneficiaries of her IRA, without creating the trust. If she wanted the children to receive their shares in separate trusts for their benefit, to keep the children’s inheritances out of their estates, and to protect against their creditors and spouses, she could have done that as well.