IRA Trust Mechanics

Submitted by Gregg Miller on Tue, 2019-06-04 23:15

Looking for any advice on following scenario:

* IRA Trust inherits grantor’s large IRA at time of death (assume $4 million)

* IRA Trust is set up with marital and family trust components for the sole benefit of surviving spouse. As spouse’s death, children will inherit 33% interests (3 children).

* IRA Trust has been set up to maximize state tax exemption of $1 million ($1 million to family trust, but for primary benefit of surviving spouse, while living). Remaining balance ($3 million) to go into marital trust for primary benefit of spouse.

* Surviving spouse is entitled to all income generated from both trusts or RMDs (whichever are larger) and to principal, as needed (and for primary support).

SO….the question

1) Are RMDs calculated the same for both the Marital Trust component ($3 million) and for the family trust component ($1 million) and, if so (or if not), do both use the uniform life expectancy table of the surviving spouse or the single life expectancy table or do they use different tables? Obviously, it would be beneficial to use the uniform life expectancy tables to calculate RMDs, as they will generate lower RMDs in either case.

2) What are the general mechanics of an IRA Trust that allow it to utilize the uniform life expectancy tables for a surviving spouse who is the primary beneficiary with the children considered contingent beneficiaries when the spouse passes.

Thanks, in advance, for sharing your wisdom and knowledge.

SR



Submitted by Bruce Steiner on Wed, 2019-06-05 02:41

  • Why mandate distributions to the spouse from the family trust?  That just throws money back into the spouse’s estate, thus defeating the purpose of the trust?
  • Is there a compelling reason to have the marital share be in trust?  That will destroy the rollover and limit the stretch to the spouse’s life expectancy.  With enough disclaimers it may be possible to get the IRA to the spouse so he/she can roll it over.
  • Given the amount of money involved, it’s unlikely that the spouse will need distributions from the family trust.  But keeping the spouse as a beneficiary limits the stretch to the spouse’s life expectancy.  It may be possible to remove the spouse as a beneficiary so the distributions can be stretched over the children’s or perhaps even the grandchildren’s life expectancy.
  • The family may want to consult with counsel (other than the one who planned the IRA owner’s estate) to see whether it’s possible to fix this, and if so, how best to proceed.
  • Bruce Steiner

Submitted by Gregg Miller on Wed, 2019-06-05 13:29

So just to clarify.  For 590 would seem to imply that if the spouse is not the sole beneficiary, she can use the uniform lifetime tables (Table III), resulting in lower RMDs than the single life expectancy table (Table 1) would.  Is that not the case or are there specific trust-specific mechanisms by which the uniform lifetime table for distribution of the trust would be allowable/facilitated? Thanks much!

Submitted by David Mertz on Wed, 2019-06-05 15:03

You’ve misinterpreted Pub 590.  Only an IRA owner can use the Uniform Lifetime table.  The trust is beneficiary, not owner, so the Single Life Expectancy table must be used to determine RMDs (assuming that the trust is qualified for look-through).  If it’s possible for the IRA to be distributed from the trust and ownership assumed by the spouse, only then would the spouse be owner and be able to use the Uniform Lifetime table.

Add new comment

Log in or register to post comments