RMDs

Submitted by Thomas Ferry on Mon, 2021-03-15 13:29

Fact pattern referenced below.

-IRA owner died in 2016. DOB 7/19/1938. DOD 3/31/2016
-the beneficiary form directed 25% of the IRA to a special needs trust for one of his adult children (John, DOB 9/19/85 DOD 4/30/2020), The special needs trust listed John by name as the trust beneficiary. The SNT went on to reference that should John be married at the time that John should pass (john was not married when the trust was drafted), his spouse would be the contingent beneficiary of the SNT.
-John passed in 2020 and was married
-assets remain in the SNT for spouse (DOB 7/16/84, and who happens to be blind and qualifies for SNT)

A few questions

-for the IRA left in John’s trust, is it correct to have been using John’s life expectancy under the single life table since 2016?
IF SO, WHAT FACTOR SHOUD HAVE BEEN USED TO CALCULATE THE RMD?

If not, then what table should RMDs have been based on and what factor used?

-Now that John has passed, when is the soonest that John’s widow has to take an RMD, what table or factor should be used, and over what period of time? I understand that under the CARES Act, that no RMDs were due in 2020.

Thank you



Submitted by Alan - IRA critic on Mon, 2021-03-15 16:23

If John’s trust was qualified for look through treatment, his first beneficiary RMD in 2017 is based on the single life table using his age in 2017. Divisor would be 51.4 for 2017, then reduced by 1.0 for both 2018 and 2019. The SNT was also responsible to complete the owner’s 2016 RMD if the owner did not complete it before passing in 2016.
Under the Secure Act, the trust is subject to the 10 year rule, meaning no annual RMDs for 2021 and beyond, but the IRA must be fully distributed by 12/31/2030. This applies whether the SNT can continue or the inherited IRA is assigned to his surviving spouse.

Submitted by Thomas Ferry on Mon, 2021-03-15 21:25

Thank youIf the trust wasn’t qualified for look through treatment, which table and factor should have been used in 2017? And, why would we not conclude that the trust qualifies as a look through trust, as John was named as beneficiary?  What are the factors and who makes that determination? 

Submitted by Thomas Ferry on Wed, 2021-03-17 14:36

Please see inquiry above from Monday 3/15/21.Thanks

Submitted by Alan - IRA critic on Wed, 2021-03-17 16:03

Most trusts are qualified, particularly SNTs, but the requirements include providing the trust info to the custodian by 10/31 of the year following the year of death. If this isn’t done, the trust is considered non qualified. Other requirements of a qualified trust include being valid under state law, becoming irrevocable at grantor’s death, and the trust beneficiaries being identifiable individuals.  Since the owner passed after his RBD, the beneficiary RMDs for the trust would have been based on the remaining LE of the deceased owner. 2017 RMD divisor would be 10.4, then 9.4 and 8.4 for 2018 and 2019.  The IRA custodian should be able to determine if the trust is qualified or not, but if they are not provided the needed info by the deadline that cannot be done and they will consider the trust to be non qualified. For that they should be able to provide the divisors from Table I in Pub 590 B.

Submitted by Thomas Ferry on Wed, 2021-03-17 17:10

Thank youFor clarification, I have two questions.1) Your original reply referenced a divisor of 51.4 in 2017, and my earlier fact patern indicated the IRA owner died after the RBD.  Your most recent answer references a divisor of 10.4 in 2017 “becasue the deceased IRA owner died after the RBD”.  Do mean the divisor would have been 10.4 in 2017 in the event that the trust was non qualified?  Would the fact alone that the IRA owner died after RBD (with a qualified trust) have resulted in the application of the 10.4 divisor? 2) “Trust beneficiaries are to be identifiable individuals”.  Does the following qualify as identifiable individuals?The beneficiary form directed 25% of the IRA to a special needs trust for one of his adult children, John., The special needs trust listed John by name as the trust beneficiary. The SNT went on to reference that should John be married at the time that John should pass (john was not married when the trust was drafted), his “spouse” would be the contingent beneficiary of the SNT.

Submitted by Alan - IRA critic on Wed, 2021-03-17 20:19

Yes, the large divisor difference results from the use of the beneficiary’s age if the trust is qualified, to use of the older decedent’s age if the trust is not qualified. If the trust is qualified, it does not matter what the DOD was for the decedent since decedent’s age will not be a factor.
With respect to John’s spouse, she appears to be a successor beneficiary to John, not a contingent beneficiary. A mere successor beneficiary does not affect the RMD divisor that John would use if the trust was qualified. I don’t know if this trust would continue as an SNT for her, but that does not affect the 10 year rule taking effect after John’s death.
You did not ask about this, but I assume that after the owner passed in 2016, that individual inherited IRAs were established for the SNT and each of the other individual beneficiaries by 12/31/2017.  If not more issues. Finally, the IRA custodian should have determined if the trust was qualified or not by the end of 2017. 

Submitted by Thomas Ferry on Thu, 2021-03-18 13:13

Thank you   Yes, inherited IRAs were established by 12/31/17.  Is there any way to not invoke the Secure act and 10 yr rule, but rather continue with John’s LE?   Could the fact that refernce was made to a “future spouse” in the original trust document that came into effect in 2016, or for any other reason, justify use of John’s LE going forward?

Submitted by Alan - IRA critic on Thu, 2021-03-18 16:34

It might be possible, and attached is an article that explains how the Secure Act affects trusts. If the SNT was properly drafted, it might be considered a “multi beneficiary trust” under Secure. First, I think that since this SNT is likely to be a discretionery trust, John’s spouse would be considered a remainder beneficiary and not a mere successor beneficiary. As such, since she is one year older, the RMDs starting in 2017 should have been based on her age rather than John’s and would have been slightly higher. The article linked below, goes on to address multi beneficiary trusts in which all beneficiaries are disabled. In such a case, it may be possible to avoid the 10 year rule here and consider using HER LE for RMDs as everyone would prefer. Since much of this is now a gray area, an estate attorney who specializies in SNTs AND is up to date as much as possible on the Secure Act should probably review this situation. That may or may not be the attorney who drafted the current SNT.
The SECURE Act’s Impact On Discretionary See-Through Trusts (kitces.com)

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