Estate inherited IRA (with all assets going to trust) with 3 adult childen, 2 are disabled. How to avoid 5yr rule?

Submitted by Dan Ghidali on Tue, 2022-11-29 23:51

Hi,
My father passed, with his primary assets in the form of 2 IRAs (one regular, one pre-1987) with the estate as beneficiary. RMDs had already started.
The will puts everything in a trust, for all 3 adult children. 2 of them are disabled.
I am being told that the IRAs will be subject to the 5 year rule, but I’ve also read that there is a PLR 202031007, which would allow the IRA to be transfered to an inherited IRA in the trust which would allow the disabled children to received the benefits using their lifetime RMD? Is this accurate? my current attorney does not think it applies?

https://www.wealthmanagement.com/estate-planning/ira-goes-estate-inherited-iras-individual-beneficiaries

I assume that the non-disabled child would be able to then use the standard 10 year rule?
Thanks!



Submitted by Alan - IRA critic on Wed, 2022-11-30 01:59

  • As stated in the PLR link, this particular PLR simply follows suit with many prior such PLRs over the years. Further, I assume that this trust was not drafted to be an SNT (supplemental needs trust) for disabled beneficiaries, or you would have so indicated, and also will assume that the trust was not specified on the IRA beneficiary clause.  As such, the trust would not be qualified, and RMDs would be based on the remaining life expectancy of your father, as he passed after his RBD. Assignment by the trustee of the inherited IRA out of the trust to individual beneficiary IRAs would provide individual control by the beneficiaries, but would not change the RMD calculation. 
  • In some cases of death after the RBD, an estate or NQ trust actually provides a longer distribution period than the 10 year rule. That would be the case if father passed in his early 80s or before.
  • For more on SNT trust IRA beneficiaries, google PLR 200620025

Submitted by Dan Ghidali on Wed, 2022-11-30 02:42

The trust is created by the will, with the stipulation that the trust proceeds be used for the health, maintenance and support of the disabled beneficiaries. So technically it could be a supplemental needs trust? If so, would that be qualified? or does the trust need to be created with specific language to be qualified? Father was only 72 when he passed. 

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