I recently read “theslottreport.com/2014/07/ruling-to-remember-what-not-to-do-when”, which caused me to call my IRA custodian to see how they would interpret my contingent beneficiary designation as suggested by my attorney and I did not like their comment.

The critical sentence is, “…shall be distributed to the Trustee of the J. Doe Trust UTA dated 11/8/2010, as it may be amended prior to my death, thereafter to be held by such Trustee as part of the Trust for J. Doe Jr. pursuant to the provisions of such Trust agreement.”

The custodian interprets this to be a 100% distribution and fully taxable the year of distribution.

The Trust document says: “Trust Distributions from Retirement Accounts: If the Trust is the beneficiary of any IRA that requires MRD’s to J. Doe Jr., then during each calendar year, any required MRD (pursuant to Section 401(a)(9) if the IRS code) shall be distributed to J. Doe Jr. prior to the end of such year. It is the Grantors specific intent that the Trust for J. Doe Jr. be treated as a “conduit trust” for federal income tax purposes, and therefore qualify as a designated beneficiary pursuant to the IRS code mentioned.”

My thought after going through this is the trust is probably written OK, but that the beneficiary designation is ambiguous at best regarding the intent to stretch the distributions.

Two questions:
1. Do you agree with how the custodian interpreted the beneficiary designation?

2. If the beneficiary designation ambiguity is resolved do you believe the Trust document accomplishes the intent of stretching the IRA?

Thanks!