Beneficiary for a Non spouse Benficiary Ira
Client(a) has Non Spouse Beneficiary Ira (550K)
So if i understand correctly at Client(a)’s death the non spouse beneficiary ira will PAY out to the currently listed beneficiary. THe ira no longer exist as an ira at that point. Taxes are due.
For example if client(a) died yesterday then 550k would be taxable income to the beneficiary and the Ira no longer exists.
SO what client(a) wants is:
Upon her Death she wants a Trust to be the beneficiary so that her
domestic partner would continue to get the interest off the account and then upon her partners death the proceeds would pay to her existing living family. Ie brothers , neices and nephews. (purpose of keeping assets in her family) not letting it go to her partners kids.
Am i missing something?
Am i miss understanding the situation of how a non spouse beneficiary ira pays out upon that person death?
This seems like the right strategy with using a trust to be able to ultimately keep the assets in her extended family long term?
Thanks for the feed back
A. Hume
Permalink Submitted by Alan Spross on Tue, 2008-03-11 20:55
Your description of the non spouse inherited IRA beneficiary option is not correct. When client passes, the successor beneficiary named on the inherited IRA will have a right to withdraw the IRA balance, but the RMD requirement would allow the successor beneficiary to continue the RMD schedule being used by the client, thereby continuing the inherited IRA for years. Right now the client’s RMD divisor is being reduced 1.0 each year, and if client passes the successor could continue to use that factor reduced by an additional 1.0 each year.
That said, to prevent the successor beneficiary from draining the account, a trust could be established as the new successor beneficiary, and the conditions in the trust could prevent the RMDs from being accelerated. It could also control the amount passed through to the income beneficiary vrs retained in the trust for the benefit of specified family members.