Non-related beneficiaries of inherited IRA
Have a 81 year old with no extended family, that put everything into his trust, including his IRA assets (which I didn’t think you could do) and dies. He befriended 3 non-related brothers and left everything to them. The brothers are splitting the IRA assets 1/3 each. Questions are: 1) If they roll their individual proceeds into separate IRAs established for each one, is this considered a distribution with penalties because they are not related to the deceased? 2) If this is allowed and they have to take RMDs, does it matter if they are individually not of retirement age? In other words, are they required to take RMDs even if they are in their 30’s and if so are they penalized for early withdrawals? 3) I read that the RMDs are based on the oldest of the 3 brothers but what if one brother (the oldest) wants to take a lump sum distribution. Is the RMD for the other two still based on the older brother’s age or is it based on the older of the remaining two brothers that wish to roll their proceeds into individual IRAs? 4) When they set up these IRAs do they have to specifically designated as Inherited IRAs or can they roll their shares into an already established IRA?
Permalink Submitted by Alan Spross on Thu, 2008-05-15 18:08
He cannot name a trust as the owner of his IRA, however it is quite common to name a trust as the primary or contingent beneficiary. In that case, it is critical to the RMD requirement that the trust qualifies for look through treatment per Pub 590, p 39. It does not matter whether the trust beneficiaries are related.
Please clarify further if the trust was named as primary beneficiary. If the trust was named as the owner, except in a special case where it is a special needs trust (SNT), the IRA has already been disqualified. It seems unlikely that an IRA custodian would register an IRA in that manner.
After you clarify the situation, I can address the RMD requirements for the beneficiaries.
Permalink Submitted by Peter Cacioppo on Wed, 2008-05-21 00:52
Will the original poster please reply as I have a similar situation with a husband that died, then wife set up an inherited IRA, and then wife died and left it to her trust, which then goes to her sister, two charities, and two non related persons. I advise the remaining sister and we hope to set up an inherited IRA with long payout.
Permalink Submitted by Al Fry on Thu, 2008-05-22 17:25
If the charity gets cashed out prior to 9/30 of year following death, you might be able to get a stretch over the oldest bene’s LE.