Trust as Beneficiary of IRA or Roth

Submitted by Gerald D on Thu, 2024-02-01 00:58

We have named a trust for one of our children as the contingent beneficiary of our various IRA’s and Roth’s. This child’s trust is named in out living trust as: “Child’s Name Trust”.

Can somebody summarize and point us to some clear descriptions of how this child’s trust will be taxed and what distributions they will be required to take after the last of us passes. It would also be very helpful to have included a description of the new 10 year distribution rules for non-spouse beneficiaries.

Thank you.



Submitted by Alan - IRA critic on Thu, 2024-02-01 18:43

  • Is the child’s trust referred to in the contingent beneficiary designation? Is that subtrust to be created after the last death? Will it be a conduit trust or accumulation trust? The trust must be qualified for look through in order for the Roth IRA to avoid the 5 year rule. For the IRA, it must be qualified to allow the 10 year rule to apply instead of the LE of the deceased spouse if that spouse passes after RBD.
  • You probably have named each other as primary IRA beneficiaries. The surviving spouse should assume ownership of the inherited IRA (unless they inherit before 59.5), and rename the trust as the primary beneficiary in most cases, because contingent designations do not carry over if the primary is still living (and does not disclaim). Therefore, the surviving spouse should name the trust as the primary beneficiary ASAP after inheriting the IRA. If you also assume the second spouse to pass will be post RBD for the IRA (all Roth IRA deaths are pre RBD), annual RMDs will be required in years 1-9 of the 10 year rule, but the Roth IRA will not be subject to annual RMDs, just the 10 year rule.
  • If the child is disabled, the 10 year rule can be avoided if the trust meets certain conditions.
  • Distributions passed out of the trust to the child will be taxed at the child’s tax rate, but distributions accumulated in the trust will be taxed at the higher trust tax rates. 
  • If you have other beneficiaries, it would be simpler to partition the IRA into one left outright to the others, so that the trust is the beneficiary of a separate IRA.
  • The estate attorney should be sure to draft the trust accordingly for the situation and recommend how the beneficiary designation on the IRAs shows the trust names.

Submitted by Gerald D on Sat, 2024-02-03 03:25

Alan, thank you for your detailed response. I’ll try to respond to your questions below.

  • Each spouse is the primary for any IRA’s/Roth’s with the kids as contingent. We are now going over all beneficiary statements changing the the other kids to “per stirpes” and the trust kid as “Kid’s Name Trust”. I dob’t  know anything about the designation of this kid’s trust other than out living trust refers to it as previously stated and also allows this kid to be his own trustee. After the last of us passes and should he then pass with any of our assets remaining these assets are to go equally to all living, named grandkids. The trust kid is currently divoreced and single.
  • Yes, we have each spouse as the other’s primary beneficiary. We are  both at an age to require minimum  distributions although most assets are in Roth’s and I am trying hard to minimize any assets left in IRA’s using Roth conversions. Should one spouse pass, the other has been verbally instructed to promote the kids to priamary with the trust kid’s beneficiary as “Kid’s Name Trust”.
  • The trust kid is not disabled. We are trying yo keep our assets away from his dispespectfol son and potentially our trust son’s Ex..
  • Much of our asets left to the kids are in Roth’s but some assets like a good-sized IRA and the house will not be able to be sheltered like the Roth’s. Is only income in the trust taxed at the trust rate and capital gains tax-free? We assume that none of the Roth proceeds ar subject to taxes, correct?
  • We have too many IRA’s/Roth’s now for  various purposes in ordr to start creating new ones to benefit specific kids.
  • This kid’s trust is specificaly mentioned in our living trust. I really do not understand how it will come into exiistance other than our attorney says that our trust controls it and it has its own truswtee, persumablly the son it he desires.

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