Trust named as Beneficiary for IRA
If you name a trust as Beneficiary of an IRA, What are the rules that should be followed. Also, I thought if you did name a Trust as Beneficiary there was a way to make the transition tax free or avoid have the IRA become a taxable event?
Permalink Submitted by Alan - IRA critic on Thu, 2024-05-23 17:11
When a trust inherits an IRA, there are no taxes due until distributions are made from the IRA to the trust, whether RMDs or otherwise.
The trust provisions determine what the trustee must do with the IRA distributions. If the distribution are passed through the trust to the trust beneficiaries, a K 1 is issued to the beneficiaries who report the K 1 income on their personal returns and this avoid the higher trust rates. But if the trust accumulates the IRA distributions in the trust, the trust must pay the taxes at the higher rate.
As for RMDs, if the trust is qualified for look through, the RMDs are based on the oldest trust beneficiary. If not, the IRA will have to be distributed in 5 years if the owner passed prior to RMD age, or under the remaining LE of the deceased owner if the owner passed after RMDs had begun. Most trusts are qualified.
There are different purposes for leaving the IRA to a trust. If there is no specific goal to be achieved then the IRA should be left to individual or charitable beneficiaries outright to avoid the added complexity, RMD complexity, and tax filing requirements for the trust.
Permalink Submitted by Ken L. Stone on Thu, 2024-05-23 18:23
Thanks for the insight!!!! Much appreciated!!!