See thru Trust as IRA Beneficiary
Trust is 100% primary beneficiary of a Trad IRA which clearly names 3 human bene’s within Trust document. The IRA owner passed away this year at age 68.
One beneficiary of the Trust is within 10 years of age of deceased IRA owner. My understanding is since the trust is beneficiary although each beneficiary now has their inherited portion of IRA under their control the RMD calculation next year (2025) is still based on the oldest beneficiaries divisor over the 10 year pay window.
Verifying that I didn’t miss a regulation/rule that allows each beneficiaries age to be used for RMD or if the beneficiary within 10 years of age can be considered a EDB in this situation?
Had the 3 humans been named as primary beneficiaries seems this would be allowed but since the Trust was primary and see thru breakout is more of a convenience to each beneficiary they all must use oldest DOB to calculate RMD’s over next 10 years?
Permalink Submitted by Alan - IRA critic on Thu, 2024-12-19 11:07
The new Secure Act Regs include a provision that if the trust provisions call for it to be split into separate sub trusts immediately after death (and the main trust terminates), the separate account rules will apply to each sub trust, and therefore the EDB’s sub trust would avoid the 10 year rule. This provision also requires that the main trust must be qualified for look through upon death. Otherwise, the separate account rules continue to not apply to trust beneficiaries.
Your question seems to indicate that the trustee of the trust was allowed to terminate the trust and assign inherited IRAs out of the trust to each trust beneficiary. Otherwise, the trustee would still have control of the trust inherited IRA. If the inherited IRAs were distributed out of the trust by the trustee (and IRA custodian cooperated), that would not change the RMDs for the beneficiaries, as they would still have to reflect the oldest beneficiary of the trust.
Permalink Submitted by MIKE KRUCHTEN on Fri, 2024-12-20 08:30
Admittedly, the term sub trust has been confusing in practice for me.
The trust is qualified, the language in both this trust and I feel 90% of trust language I see pass my desk generally is broad such as;
“I give the balance of my trust in equal shares to my surviving children”
The intent of this trust/case was to pass the IRA assets to his 3 adult children at death. The purpose of having the Trust named as beneficiary was to direct the contingent beneficiaries in the event the adult child passed and each family dynamic of whom would receive was different for each adult child. I provide this additional context only because I feel its often questioned why an IRA owner would place their Trust as beneficiary and rarely in my experience is it for spendthrift/creditor protection rather to guide contingent beneficiaries should adult children predecease IRA owner.
Yes, the IRA custodian has assigned a 1/3 portion of the IRA assets to each adult child in their respective Bene IRA. Trustee no longer has control of these assets and Trust will be closed out.
So no sub trust was created to hold the IRA assets before moving to each adult child’s Beneficiary IRA. But in reading about IRS qualification of See-Through trust I didn’t see any specific language about a sub trust.
With the above additional info, does it appear the beneficiary who is within 10 years of IRA owner then would be considered a EDB allowing her to stretch RMD’s over her lifetime??
Permalink Submitted by Alan - IRA critic on Fri, 2024-12-20 11:26
There is no logical reason that the new Regs should not have included this situation as an exception along with the provision copied below that clearly only applies to remaining sub trusts, but not to distributions of inherited IRAs out to the individuals – but it doesn’t. The following is copied from p 469 of IRB 2024-33 released in August after the final Secure Act Regs:
“B) Exception for certain trusts divided
upon the death of the employee. Section 401(a)(9) is applied separately with
respect to the separate interests of the
beneficiaries of a see-through trust if the
terms of the trust provide that it is to be
divided immediately upon the death of
the employee, provided that the requirements in paragraph (a)(1)(iii)(C) of this
section are satisfied. The preceding sentence applies only if the separate interests
are held in separate see-through trusts (in
which case the rules of §§1.401(a)(9)-4(f)
and 1.401(a)(9)-5 will apply separately to
each separate trust).”