Look-through trust
The IRA owner died leaving his trust as the beneficiary. The trust calls for a distribution of 40% of the assets to his children (from previous marriage) and the remainder to remain in trust for the wife’s income for her life. There are other nonqualified assets. The trustee would like to satisfy the 40% provision using the IRA assets. It is the opinion of the attorney that the trust qualifies as a look-through. Should the adult children establish inherited IRA accounts and the trustee instruct the existing IRA to transfer directly to those inherited IRAs? RMDs would be based on the oldest beneficiary? How are those inherited IRA’s titled?
Permalink Submitted by Alan - IRA critic on Fri, 2014-10-31 20:34
The provisions of the trust may allow the trustee to assign the IRA directly to the trust beneficiaries, and the beneficiaries could also have separate inherited IRAs. But that will not change the RMDs since the IRA was left to a trust. If the trust is qualified, the oldest beneficiary of the trust, likely the wife but not necessarily so, will determine the RMD divisor for all trust beneficiaries. The inherited IRAs would be titled showing the individual beneficiary name as beneficiary of (IRA owner).
Permalink Submitted by mk foss on Sat, 2014-11-01 00:05
In order to accomplish this, the decedent’s benefit would be transferred to an inherited IRA listing the trust as the beneficiary. Then the trustee could direct the custodian to transfer benefits to individual inherited IRAs of the children. I don’t know of a trustee that would transfer funds directly from the decedent’s account to the trust beneficiary-children.
Permalink Submitted by Ryan Smith on Mon, 2014-11-03 15:05
That is helpful