IRA In a Trust

Submitted by William Scarfia on Wed, 2016-12-07 18:17

What are the downsides of having an IRA (not a Roth) in a Trust. Facts are deceased moved IRA into a trust. The IRA and other assets to be given 90% to three charities and 10% to individuals. A RMD was taken in 2016 already. Other assets stocks, bonds and a condo to be sold then money distributed. Death was 2016. No distributions yet in 20176, but planned for 2017. What are the issues? Thank you.



Submitted by Alan - IRA critic on Wed, 2016-12-07 21:52

  • The two main downsides are complications that result in loss of the ability to stretch the IRA and if the trust accumulates the IRA distributions, the higher compressed income tax rates that apply to trusts or estates. If the trust provisions allow for termination of the trust in a short time and assignment of the IRA to the trust beneficiaries, then these two downsides are eliminated. Of course, so is any creditor protection due to the IRA being a trust asset.
  • If the charities are not paid off completely no later than 9/30/2017, then the trust will not be qualified to apply the oldest beneficiary age for RMDs should the trust continue beyond that date. There are other requirements including notifying the IRA custodian of trust details for the trust to be qualified as well. Perhaps these questions can be resolved before 9/30/2017 which would simplify things. Hopefully, the trustee of the trust is detail minded and pro active or knows where to get technical advice. 

Submitted by Ben Meyer on Thu, 2016-12-08 00:13

  • Another downside is that, in many states, a trust or estate with charitable beneficiaries must register with the charity regulators of the state as a charitable organization.  Yes, the living trust of an individual becomes a charity after the death of the trustor, and is then subject to regulation as a charity.  
  • In California, a trust with charitable beneficiaries must register with the California Attorney General, Charitable Trust Section.  In New York, a charitable trust must register with the New York State Department of Law, Office of the Attorney General, Charities Bureau.  Several other states have similar requirements.  Usually a financial statement must be submitted, along with possibly a registration fee and a copy of the trust.
  • Most persons who are setting up their personal living trusts are not aware of these requirements when they designate charities as their beneficiaries.  Also many attorneys are unaware of these requirements.  The requirements may be sometimes ignored, but they are subject to enforcement.  
  • This is one reason why it is a better idea to make charities as beneficiaries of the IRA directly, not via a trust.

Submitted by Bruce Steiner on Fri, 2016-12-09 00:19

  • Why would siomeone create a trust that pays out at his/her death and leave his/her IRA to it?  It can create lots of issues, some of which others have raised.  It would make more sense to leave the IRA to the beneficiaries either outright or to separate trusts for their benefit.
  • Bruce Steiner

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