Trust as Bene of IRA
If the trust is the bene of an IRA, can it still be stretched? If so who’s life expectancy is used? Especially if there is more than one bene of the trust? Thanks for the help!
If the trust is the bene of an IRA, can it still be stretched? If so who’s life expectancy is used? Especially if there is more than one bene of the trust? Thanks for the help!
Permalink Submitted by Alan Spross on Sat, 2008-06-14 00:19
Yes, as long as the trust qualifies for look through treatment. Those requirements are listed in Pub 590 on p 39. However, separate account treatment does not apply to trust beneficiaries, and for a qualified trust the age of the oldest beneficiary must be used by all individual beneficiaries.
Permalink Submitted by Stephen Rhodes on Sat, 2008-06-14 00:25
[quote=”[email protected]“]Yes, as long as the trust qualifies for look through treatment. Those requirements are listed in Pub 590 on p 39. However, separate account treatment does not apply to trust beneficiaries, and for a qualified trust the age of the oldest beneficiary must be used by all individual beneficiaries.[/quote]
Thanks for the quick response. One other question. What is the main benefit of making the trust bene other than when minor kids are the benes? What power does the trustee have in regards to the distributions?
Permalink Submitted by Alan Spross on Sat, 2008-06-14 00:44
The trustee is subject to the provisions stated in the trust, but within those limits has considerable powers, which are also specified in the trust in most cases.
The advantages of leaving an IRA in trust include control of the IRA distributions for spendthrift beneficiaries, protection of trust assets against creditors including spouses, estate tax benefits in some cases by keeping assets out of beneficiary gross estates, and possibly estate tax benefits for the trustor when a bypass trust is funded.
On the other hand, if you have a trustee that is not aware of the issues, and/or mishandles things, the situation can have some ugly consequences including loss of any stretch benefits.
Permalink Submitted by Bruce Steiner on Sun, 2008-06-15 03:40
I don’t know what you mean by “the” trust. Most clients who have more than one child leave each child’s share in a separate trust. But Alan has pointed out the benefits of providing for children in trust rather than outright. The same reasons for leaving other assets to children in trust rather than outright apply in the case of IRA benefits.
For more on this subject, see my article on trusts as beneficiaries of retirement benefits in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf