IRA with Trust as Primary beneficiary
I have been digging through your articles and other resources and don’t feel I have a clear answer regarding available options for an IRA in a revocable living trust regarding non-spousal beneficiaries. Here’s the layout:
1.The IRA is currently titled: PTC CUST BENEFICIARY IRA FBO JOHN DOE FAMILY TRUST B/O JOHN DOE
2.The primary beneficiary of the IRA is the trust
3. John Doe died 6/1/03 at age 73 – he was satisfying his RMDs up to his death including the year of his death
4. His spouse, Jane Doe, left the IRA as is and continued to satisfy the RMDs.
5. Jane Doe died 4/13/13 at age 85.
6. There are 4 children who are beneficiaries of the trust, 2 of which are trustees.
7. The trust will allow the children to liquidate the assets of the trust to take their equal shares.
That being said, my questions are:
1. Can the kids establish inherited IRA accounts to continue the tax deferral and ongoing accumulation or are they obligated to take an IRA distribution and pay the taxes?
2. If there are obligated to take distribution of the IRA, will they be taxed at the trust rates or their own rates?
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-22 17:22
If the trust met qualification requirements, the RMDs have been based on the oldest trust beneficiary, likely Jane. Those RMDs continue to be calculated using Jane’s life expectancy as of her age at the end of 2004 until the IRA has been fully distributed. There is no IRS requirement for a lump sum distribution if the trust is terminated, but the custodian may well infer that there is. If they do, check the IRA agreement carefully to determine if such a provision is included. The trustee of the trust can have the IRA assigned to the remaining trust beneficiaries in individual inherited IRA accounts, but the RMDs must continue using Jane’s schedule. If the parties want to pursue this and the custodian does not cooperate, it may be worth it to seek out a custodian who will establish the individual inherited IRAs to receive the appropriate shares of the balance. If the trust has been accumulating the past RMDs, the trust is paying taxes at the higher trust rates. If the RMDs have been passed out of the trust to Jane and now other beneficiaries, those beneficiaries receive a K 1 and pay taxes at their individual rates.