IRA custodians and ability to create a trust for minor beneficiaries
I have a client whose daughter died intestate, thereby leaving an IRA account for her minor children. The daughter never married, and the children’s father is their guardian and therefore IRA custodian. The client is worried about the minor children having access to the IRA funds upon their 18th birthday.
Assuming the father, as custodian, is willing to work with us, how can he transfer the IRA funds to a trust for the benefit of the minor beneficiaries so that the distributions are somehow staggered over the ten-year withdrawal window allowed under the SECURE Act? Thanks!
Permalink Submitted by Alan - IRA critic on Fri, 2022-09-16 14:38
Did the IRA agreement contain a default beneficiary chain where the minor children were treated as designated beneficiaries, or did her estate inherit this IRA? If the estate, the 5 year rule will apply and the minors would not qualify as EDBs because they would not be designated beneficiaries.
Permalink Submitted by Vaughn Stewart on Fri, 2022-09-16 17:55
Thanks for answering.The estate inherited the IRA, with the children as the sole beneficiaries of the estate. Our client is the personal representative, but not the children’s guardian (that’s their father). Without qualifying as EDBs, what are the PR and guardian’s options regarding putting the funds in a trust for the benefit of the children?
Permalink Submitted by Alan - IRA critic on Sat, 2022-09-17 03:36
The IRA cannot be transferred to the trust. It would have to be distributed subject to tax and then the remainder could be placed in a trust. The IRS allowed a special needs beneficiary to transfer and inherited IRA into a self settled grantor trust in PLR 2006 20025, but that’s an exception. A trust should be named as beneficiary on the IRA agreement if the benefits of a trust are desired.