RMD w/ Trust Beneficiary

Submitted by Christopher Combs on Fri, 2015-02-20 03:50

Dear Alan et al,

My client’s DOB is 9-5-1947. His wife’s DOB is 8-22-1958.

His IRA beneficiary is a trust created under his last will and testament.

When he begins RMDs, will this beneficiary designation force him to use the Uniform Lifetime Table? Or can he use the Joint and Last Survivor Table?

I’m told that if the beneficiary is a trust, then the uniform lifetime table must be used so I need some clarification.

Thank you,

Chris



Submitted by Alan - IRA critic on Fri, 2015-02-20 04:14

Chris, if the required documentation is provided under which the spouse is considered the sole beneficiary of the trust, then Table II can be used for client’s RMDs while living. IRS Reg. 1.401(a)(9)-4 Q 6 is the reference:

Q-6. If a trust is named as a beneficiary of an employee, what documentation must be provided to the plan administrator?A-6. (a) Required minimum distributions before death. If an employee designates a trust as the beneficiary of his or her entire benefit and the employee’s spouse is the sole beneficiary of the trust, in order to satisfy the documentation requirements of this A-6 so that the spouse can be treated as the sole designated beneficiary of the employee’s benefits (if the other requirements of paragraph (b) of A-5 of this section are satisfied), the employee must either—(1) Provide to the plan administrator a copy of the trust instrument and agree that if the trust instrument is amended at any time in the future, the employee will, within a reasonable time, provide to the plan administrator a copy of each such amendment; or(2) Provide to the plan administrator a list of all of the beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions on their entitlement sufficient to establish that the spouse is the sole beneficiary) for purposes of section 401(a)(9); certify that, to the best of the employee’s knowledge, this list is correct and complete and that the requirements of paragraph (b)(1), (2), and (3) of A-5 of this section are satisfied; agree that, if the trust instrument is amended at any time in the future, the employee will, within a reasonable time, provide to the plan administrator corrected certifications to the extent that the amendment changes any information previously certified; and agree to provide a copy of the trust instrument to the plan administrator upon demand.

Submitted by Christopher Combs on Fri, 2015-02-20 04:52

Thank you very much for your prompt and thorough response.  Here is what I understand:Client’s DOB is 9-5-1947 which means that he turns 70 on 9-5-2017 and 70.5 on 3-5-2018.  Since he will be 71 on 12/31 in the year that he turns 70.5, his first distribution will be taken based on age 71.His wife’s DOB is 8-22-1958 which means that she will be 60 on 12/31 in the year that the client turns 70.5.  Therefore, when using Table II we would use her age 60 for the first distribution.Does this sound accurate?Thanks again for your valuable contribution to our industry.

Submitted by Alan - IRA critic on Fri, 2015-02-20 17:52

You are correct. First RMD year of 2018 would have a divisor of 27.2  (ages 71 and 60), instead of 26.5 had spouse been 1 or more years older. This will reduce his RMD by roughly 2.6%.

Submitted by Bruce Steiner on Fri, 2015-02-20 22:04

It’s possible for her to be the “sole beneficiary” of the trust for this purpose, but it would be unusual.  He’s giving up a great deal of income tax deferral by not naming her as the beneficiary.

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