Mechanics of Inherited IRA in Trust?

Submitted by Kim Dodge on Mon, 2017-03-06 22:07

My Dad left part of his IRA assets to his Grandson’s in a Trust. I am the Trustee. I am trying to understand the mechanics setting up the accounts, TIN’s and the flow of the MRD’s.

The beneficiary of the IRA account reads: “Separate Trust shares for John Smith under the Jones Revocable Living Trust – 16%”, and so on for the 3 Grandsons who are brothers. One is 16, One is 19 and One is 21.

The funds may be used for educaiton or a home prior to the age of 25, then any remaining may be distributed. They will each be using the funds at different rates.

I have the Fidelity forms to set up the accounts and ensured that they qualify for Look Through treatment for MRD.

I now understand that the distribution(s) from the Inherited IRA (s) will flow into the Trust, then I must distribute 100% of the funds to the beneficiaries to push the taxation down to the boys and will do this via a K-1. However, I need help with a few of the mechanics –

1 – I need to get aTIN for the Trust as it is currently in my step-mother’s. Do I need 3 separate TIN’s for 3 separate sub-trusts (for each boy) or just one?

2 – Should I set up one Fidelity Inherited IRA Account or 3?

3 – Do I need to create a new bank account to receive the distributions from Fidelity and to then send out the distributions to the Grandsons?

4 – When I issue the K-1’s can I specify different amounts for each boy based on what I withdrew from Fidelity for their use, or do the K-1’s have to be allocated according to share percentages?

Any other guidance is appreciated!
Thanks!



Submitted by Bruce Steiner on Tue, 2017-03-07 21:58

  • It’s not clear from “separate trust shares” whether it’s one trust with separate shares for each grandson, or separate trusts for each grandson.  What does the trust agreement provide?  
  • If it’s separate trusts, each trust will have its own taxpayer identification trust, just as each grandson has his own name.
  • While there may be an income tax savings by making distributions to the grandsons, money retained in the trusts won’t be included in the grandsons’s estates, and will be protected against their creditors and spouses, and Medicaid.  You’ll have to weigh the asset protection of retaining the money in the trust against the income tax savings of making distributions.
  • You may wish to consult with the attorney handling your father’s estate, or with other competent tax or trusts and estates counsel, who will have the advantage of seeing the actual trust agreement.

Submitted by Kim Dodge on Wed, 2017-03-08 18:57

Thank you for your response.  The Trust does not say anything about separate Trusts.  The only reference to this matter in the Trust document is as follows – “The Trustee shall distribute the remaining balance to Jane Smith’s then living children in equal shares, such shares to be held in trust until age 25.  The Trustee may make distributions for the grandchild’s educational needs, or for a down payment on a home.  When the grandchild reaches age 25, the Trustee shall distribute the remaining trust property to the grandchild outright. “Each grandchild will be receiving different amounts from the Fidelity IRA as needed per the stipulations of the Trust.  As such I would want to allocate their income on their K-1’s in accordance with the amounts they received during the year and not equally.  Can this be done?  If not, then that alone will require separate Trusts..    

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