Transfer IRA from trust to beneficiaries
I have a client who’s mother passed away many years ago. The mother had an IRA that named her husband’s trust as the beneficiary of the account. The husband survived his wife and took distributions from the IRA based on his life expectancy. The husband then died. The trust names the couple’s daughters as the trust beneficiaries and requires that the trust assets be distributed free of trust to the beneficiaries, one of which is my client.
Here’s my question: May the trustee distribute my client’s share of her mother’s IRA to her as an inherited IRA free of the trust? Also, what are the tax consequences of doing so? Thank you very much.
Permalink Submitted by Alan - IRA critic on Mon, 2017-03-27 19:17
The trustee can assign the IRA out of trust to the trust beneficiaries. The trust document only requires distribution from the trust, not from the IRA. Such transfer is not currently taxable. Each such trust beneficiary can have their own inherited IRA but all must continue the RMD schedule used by the husband except the Table I divisors must now be reduced by 1.0 each year. Inherited IRA distributions will then be reported on each beneficiary’s tax return and tax paid at their individual rates.