Permalink Submitted by Rich Brown on Fri, 2008-02-29 23:02
The owner of the trust is alive. A revocable trust has been established and there are multiple IRAs and multiple beneficiaries, with no known disabilities.
How and when does the IRA get re-titled for the trust while keeping the tax advantages?
Permalink Submitted by Alan Spross on Sat, 2008-03-01 05:10
While the IRA owner is alive, the trust is named as primary or contingent beneficiary of the IRAs or respective IRA. At the death of the IRA owner, the IRA is re titled to show the trust’s beneficial interest, eg. ” K. Smith Trust, as beneficiary of J. Smith, deceased.”
The income tax advantage is mostly limited to being sure that a trust named as beneficiary is qualified for look through treatment. That will allow the IRA to be distributed using the life expectancy of the oldest trust beneficiary, thereby maintaining tax deferral for the IRA. If the trust is written to retain IRA distributions, the higher income tax rates for a trust will apply. If the trust is a conduit trust directing all IRA distributions to the trust beneficiary in the year distributed, then the income tax marginal rates of the beneficiaries will apply and they will get a K1 from the trust.
There might also be estate tax advantages if the trust is a bypass trust allowing the exemptions for both spouses to be applied.
Permalink Submitted by Alan Spross on Fri, 2008-02-29 18:50
Has the owner already passed?
Has the trust been created yet? Is beneficiary disabled?
Permalink Submitted by Rich Brown on Fri, 2008-02-29 23:02
The owner of the trust is alive. A revocable trust has been established and there are multiple IRAs and multiple beneficiaries, with no known disabilities.
How and when does the IRA get re-titled for the trust while keeping the tax advantages?
Permalink Submitted by Alan Spross on Sat, 2008-03-01 05:10
While the IRA owner is alive, the trust is named as primary or contingent beneficiary of the IRAs or respective IRA. At the death of the IRA owner, the IRA is re titled to show the trust’s beneficial interest, eg. ” K. Smith Trust, as beneficiary of J. Smith, deceased.”
The income tax advantage is mostly limited to being sure that a trust named as beneficiary is qualified for look through treatment. That will allow the IRA to be distributed using the life expectancy of the oldest trust beneficiary, thereby maintaining tax deferral for the IRA. If the trust is written to retain IRA distributions, the higher income tax rates for a trust will apply. If the trust is a conduit trust directing all IRA distributions to the trust beneficiary in the year distributed, then the income tax marginal rates of the beneficiaries will apply and they will get a K1 from the trust.
There might also be estate tax advantages if the trust is a bypass trust allowing the exemptions for both spouses to be applied.