Trust Transfer of Subtrust Interest to Beneficiary
I have read a number of posts and researched this issue but cannot find an answer. Hope someone has an idea.
Client with several minor grandchildren wants a revocable living trust to generally provide that his responsible, head-screwed-on-straight grandchild will receive his or her full share of the trust at age 25 (and trustee discretionary payments prior to the time). Thus, assuming all grandchildren are responsible, the trust would ordinarily terminate when the last grandchild reaches 25.
If the master trust is designated as the beneficiary for each of the sub-trusts, is it possible for the trust/sub-trust to also transfer the IRA entitlement directly to the beneficiary at age 25 such that the beneficiary retains the stretch of RMDs? In other words, if the grantor’s concerns for control never materialize and he is deceased, he would like for his son (who is the trustee) to be able to terminate the trust so that the trust does not need to receive the RMD initially only to turn around and transfer it to the grandchild.
Permalink Submitted by Bruce Steiner on Sun, 2019-12-22 18:58
It’s possible, but it would throw the assets into the grandchild’s estate and expose it to the grandchild’s creditors and spouses.
Permalink Submitted by Randall Vaughan on Sun, 2019-12-22 21:34
Appreciate the response but my question was intended to focus more on the effect of the distribution. In other words, if the purpose of control no longer exists because the beneficiary is a responsible adult, is there a way for the Trustee to to put the IRA subtrust into the names of the beneficiaries directly (as if the trust had never been named) so that they may continue their individual stretches (or the 10 year rule under the SECIRE Act). My concern is whether that change (similar to an IRA owner making his trust the “owner” of the IRA) would be treated as a withdrawal resulting in taxes becoming due on the full amount. If there is no way to transfer the account, then another alternative I have considered is for the Trust to allow the Trustee to resign and appoint the beneficiary as Trustee of his or her own subtrust at age 25. Most of my clients appoint relatives to serve as Trustee. Obviously, non-IRA assets can be fully distributed but putting IRA distributions in the Trust may result in the need to extend the trust to accomplish tax deferrals. While less of an issue under the S
Permalink Submitted by Bruce Steiner on Sun, 2019-12-22 22:53
The trustees could distribute the inherited IRA. But it would be better to let the beneficiary become a trustee and gain the power to remove and replace his/her co-trustee (provided the replacement trustee isn’t a close relative or subordinate employee) at the desired age.