Trust as IRA Beneficiary
Altho the suggestion by some postings to ideally use a Discretionary Trust vs a Conduit Trust makes some sense, wouldn’t that mean forgoing use of the beneficiaries’ life expectancy when calculating RMD; ie, the IRA funds would instead need to be distributed over 5 yrs. That of course would mean far more quickly losing all the benefit of the IRA tax shelter (esp a Roth IRA).
Or am I missing something? Is there a means that would both allow Discretionary distributions (of non-IRA funds) AND Retaining Roth IRA RMDs in the Trust at the Trustee’s discretion (while still permitting use of the beneficiaries’ life expectancies)? That would be the ideal.
Alternatively, can a single Trust allow Trustee Discretion on all distributions except IRA, and so require IRA RMD’s to go to the Beneficiaries vs being retained in the Trust?
Would that compromise approach then still allow use of the Beneficiary life expectancy for RMD?
Permalink Submitted by Alan - IRA critic on Tue, 2015-07-07 21:19
Both a discretionery and a conduit trust can be “qualified”. Being qualified is what avoids the 5 year rule and allows use of the oldest trust beneficiary’s life expectancy, so you need to be sure the trust meets the qualification requirements. The only advantage of a conduit trust in this respect is that remainer beneficiaries of the trust are not considered in determining the oldest beneficiary. Your best option is likely a qualified discretionery trust that does not name any beneficiaries older than the primary beneficiaries, then there would be no need for a conduit trust.
Permalink Submitted by Bruce Steiner on Tue, 2015-07-07 21:34
Conduit trusts rarely if ever make any sense. If the beneficiary lives to life expectancy, which will happen 50% of the time, nothing will be left in the trust. All of the assets will be thrown into the beneficiary’s estate for estate tax purposes, and exposed to the beneficiary’s creditors and spouses. For more on trusts as beneficiaries of retirement benefits, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://kkwc.com/wp-content/uploads/2015/04/AR20041209132954.pdf#toolbar=1&navpanes=0&nameddest=self&page=1&view=FitH,0&zoom=80,0,0.
Permalink Submitted by W Dobroski on Tue, 2015-07-07 21:53
Thank you both