Leave IRA to Living Trust for the Benefit of Child

Submitted by Gerald D on Thu, 2023-07-20 20:13

Is it possible using an appropriate beneficiary statement to leave an IRA or Roth FOR THE BENEFIT of an adult child in my living trust so that my trust can place some conditions on how that child passes the proceeds upon passing? What I am trying to do is prevent an automatic passing of my assets to the child’s child (my grandchild) upon death. We would like the remaining assets to be split among all of our living grandchildren instead of just the offspring.



Submitted by Alan - IRA critic on Thu, 2023-07-20 22:09

You can place distribution conditions in a trust or a trust created in your will. However, it is odd that you want to limit your child’s beneficiary options without limiting the amount that the child will himself drain from the IRA.  The child could drain the IRA leaving nothing for any successor beneficiary. 

Submitted by Gerald D on Sat, 2023-07-22 17:25

We are not trying to restirct this child’s access to an inheritance. Instead, we are trying to deny access by his child. our grandchild, unless they both reconcile in a meaningful way and our child reflects this in a written will/trust.

Submitted by David Mertz on Thu, 2023-07-20 22:22

Because the inherited IRA will almost certainly be subject to the 10-year rule, if you want to limit the amount that can be distributed from the trust to your child to less than the full amount by year 10, some amount would have to be retained by the trust.  Since higher tax rates kick in a much lower taxable incomes to the trust that to the individual, in doing so you might want to consider making the trust the beneficiary of a Roth IRA rather than of a traditional IRA.  The relative amount in your Roth IRAs can be increased by doing Roth conversions while you are still alive.

Submitted by Gerald D on Sat, 2023-07-22 17:28

Are you saying that a Roth is exempt from the 10 year rule or that the Roth would not produce any taxable income in the 10 year period but still have to be distributed is 10 years?

Submitted by Alan - IRA critic on Sun, 2023-07-23 01:13

Submitted by David Mertz on Sun, 2023-07-23 03:33

Who will determine if reconciliation has been achieved?  If your child is the one who will make that determination, it would seem to make sense to just make your child the beneficiary, then let your child name the successor beneficiary of your child’s choosing and change that beneficiary when appropriate.  Nothing requires your child to name your grandchild as the successor beneficiary.

Submitted by Gerald D on Thu, 2023-07-27 16:38

Our son would have to determine if he has reconciled. We do not want to leave it to our son since should he not create a will or trust, state law would then kick in and the grandson would surely inherit.If our son fails to  reconcile before he passes we would then like his inheritance to be slipt among all of our living biological grandchildren, including his son.Thank you.

Submitted by David Mertz on Thu, 2023-07-27 19:14

The downside remains that if RMDs are retained in the trust to maintain control of the funds, much more is likely to go to federal taxes than would be the case if the RMD income was passed through from the trust to your son (unless your son is in the highest tax bracket).  Once the funds are distributed from the trust to your to your son, which would happen within 11 years of your death if RMDs are not retained in the trust, the trust becomes irrelevant.

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