IRA in a Trust

Submitted by Danny Harlow on Thu, 2018-09-13 19:34

Have a client with significant qualified funds (IRA) whose wife passed away a year ago. Decided to get his affairs in order and wants these funds to go to his son. I received a letter from a local attorney instructing a change of beneficiary to his newly constructed living trust. There is no indication of an IRA Inheritance Trust just a family living trust (WA State). It is my understanding that if the Trust is the beneficiary and then disperses to the son wouldn’t that create a taxable event for his estate and the entire amount becomes taxable? Doesn’t that eliminate the stretch option for the son? Need clarification!



Submitted by Alan - IRA critic on Thu, 2018-09-13 23:02

The IRA funds remains in the inherited IRA except that all RMD distributions must be made to the trust until the trustee is allowed to terminate the trust and assign the inherited IRA to the beneficiary. However, if this trust is not qualified for look through treatment, then much of the stretch will be lost. If it does qualify, then the oldest beneficiary of the trust will determine the IRA RMD. The client should ask the attorney what the purpose of naming the trust as IRA beneficiary is. Perhaps it is related to better creditor protection that the son needs etc. If so, then perhaps something more specific than a living trust should be considered.

Submitted by Danny Harlow on Fri, 2018-09-14 00:14

So, you’re saying that the Trust CAN be the beneficiary without triggering a taxable event?  The investment account is titled how? I don’t understand

Submitted by Alan - IRA critic on Fri, 2018-09-14 00:53

Title would be “John Smith living trust, as beneficiary of John Smith”. While there will be taxable RMDs to take, no additional amounts need to be distributed from the inherited IRA. 

Submitted by Bruce Steiner on Fri, 2018-09-14 02:58

  • Whether the stretch will be available depends on the terms of the trust.
  • I don’t understand the plan.  Why doesn’t he leave his IRA either to his son or to a trust for the benefit of his son?  Why would he want to run it through a revocable trust?
  • I was on the panel for the Seattle Estate Planning Conference in the fall of 2016.  In preparing for my talk I spoke with one of the top trusts and estates lawyers in Seattle, who told me that probating a Will in Washington State was not difficult, and revocable trusts were not commonly used in Washington State.  Afterward I met with another lawyer from a major firm in Seattle (who had come to my talk) when he came to New York, and he said the same thing.  Why does this person want to create a revocable trust?
  • Bruce Steiner

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