IRA and Inherited IRA left to Trust- Payout Questions

Submitted by Krista McBeath on Wed, 2021-08-04 19:18

I am trying to think through all of the possibilities. The decedent left and IRA and an Inherited IRA (which he inherited from his deceased spouse) to his trust for the benefit of his two grandkids. I know there are rules when qualified accounts are left to the trust. Ultimately, we would like to leave the assets tax-deferred. The decedent died after his RBD. However, he was not taking RMD’s from the Inherited IRA because his deceased spouse passed before her RBD and still would not have reached her RBD this year.

So, we assume that the trustee can establish two Inherited IRA’s, one for each grandchild. (this is skipping a generation) If so, would these inherited IRA’s have to pay out over 10-years? And I assume the trustee can deposit the proceeds into the trust?

Regarding the account that was already an Inherited IRA, can this become a new inherited IRA for the two grandkids? Following the same scenario above?

It is so much easier when a Retirement PLan Trust is used!



Submitted by Alan - IRA critic on Wed, 2021-08-04 23:25

The trust provisions govern what can be done with IRA distributions (eg accumulating the IRA distributions or distributing the inherited IRA out of trust to the grandkids individual inherited IRAs). It must also be determined if the trust qualifies for look through treatment or not. If so and assuming the grandkids are not disabled, the 10 year rule will apply, but if not qualified the decedent’s remaining LE will apply will apply for both the owned IRA and the inherited IRA, because the decedent was not yet taking RMDs from the inherited IRA, and therefore is treated as the owner with respect to decedent’s beneficiary (the trust) RMDs. Complicated !

Submitted by Krista McBeath on Tue, 2021-10-12 14:16

We have determined that the trust does qualify.  The custodian has a copy and the beneficiaries (the grandkids) are the named in the trust.For the IRA, the owner dies after RBD in 2021.  I originally thought we had to use the 10-year rule.  As a designated non-spouse beneficiary, I read we can use the oldest age of the multiple beneficiaries, based his age YE, following year of death, and reduce LE by 1 each year.  Is this true?  I also found a PLR that backs this idea. For the Inherited IRA, the original owner (wife) left it to her husband.  When she died, she had not reach RBD.  When the husband died, she still would not have been old enought to have RMD, therefore he was not taking any RMD’s.  I am told this now becomes a 2 Generation Inherited IRA.  I read in PLR 202140011 that distributions from the inherited IRA could be calculated using the LE of the husband.  This goes against what I thought.   Can you clarify on any of this?

Submitted by Alan - IRA critic on Tue, 2021-10-12 15:42

The referenced PLR cites several IRS Regs that applied prior to the Secure Act because the decedent (A) passed prior to 2020 and the Secure Act changes therefore did not apply. In your case here, death was in 2021 and the RMD rules are subject to the Secure Act. 
For the already inherited IRA, the rule that a sole surviving spouse is treated as the owner if they pass prior to the date on which beneficiary RMDs were to begin was not changed by Secure. However, being treated as the owner does not change the outcome for the trust beneficiaries. The trust is subject to the 10 year rule and would have been whether the decedent was treated as owner or as a designated beneficiary of his spouse when such spouse passed pre Secure. Therefore, for both of these inherited IRAs, the Secure Act destroyed the stretch for the grandchildren (unless they are disabled) and substituted the 10 year rule.

Submitted by Krista McBeath on Tue, 2021-10-12 16:14

Thank you for the clarification.  This has been a nightmare!

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