Trust as IRA Beneficiary

Submitted by Janis Sleeter on Fri, 2018-05-25 18:50

I have a client couple with a daughter over 25 and a special needs son.
Their IRA’s have 50% going to the daughter and 50% to the son’s special needs trust.
The attorney told the clients that the special needs trust met the IRS pass through/see through for a stretch.
I am not so sure on that. What are the key points I need to double check?

Also, the wife recently passed away, and the husband wants to roll her IRA into his. The attorney says he should have his revocable, living trust as the beneficiary of his IRA. That trust has the bulk (but not all) of the assets going 50% to the daughter and 50% to the son’s special needs trust. I definitely don’t see how this would qualify for a stretch for the son’s trust and think it could jeopardize the stretch for the daughter too.

Appreciate your input on this.



Submitted by Alan - IRA critic on Fri, 2018-05-25 20:07

  1. The requirements for a trust to become qualified are listed on p 12 of Pub 590 B. Most trusts do meet these requirements when drafted, but there is a deadline for the trustee of the SNT to submit trust details to the IRA custodian after the IRA owner passes. Therefore, the major risk is probably that the trustee misses that deadline, which is 10/31 of the year following the year of owner’s death.
  2. What is the purpose of the RLT with respect to IRA funds?  It might make more sense to simplify things for the daughter by having one IRA left to her outright and the other IRA left to the SNT once he has elected to assume ownership of the inherited IRA. Just because an RLT is suitable for some assets does not mean that the RLT must inherit everything. Client should ask the attorney why one IRA should not be left to the daughter outright.

Submitted by David Mertz on Fri, 2018-05-25 21:51

Unless there is some specific reason beyond just aggregation of the assets, it usually doesn’t make sense to make the RLT the beneficiary of an IRA.  Making the RLT the beneficiary has the downside that, at best, (if both the revocable living trust and the SNT are qualified for look-through), the distribution period for both the daughter and the son will be based on the age of the older of the two.  If the beneficiaries of the IRA are instead the daughter and the SNT directly (and the SNT is qualified for look-through) each beneficiary’s distribution period will be separately determined by the age of the particular beneficiary (provided the original IRA is split into separate accounts by the end of the year following the year of the owner’s death).

Submitted by Bruce Steiner on Sun, 2018-05-27 01:21

  • There’s no need to run the IRA through a revocable trust.  It can only cause problems.
  • Revocable trusts make sense in some cases, and in some states, but they’re overhyped and oversold, and for most people in most states aren’t necessary.
  • She could leave 50% to (or, preferably, to a trust for) her daughter and 50% to a trust for her son.

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