Bypass trust funded with IRA
Wife dies and leaves IRA to her credit shelter trust which owns IRA for benefit of husband. Husband passes away and has 4 children.
How must assets in bypass trust IRA be distributed to children?
Wife dies and leaves IRA to her credit shelter trust which owns IRA for benefit of husband. Husband passes away and has 4 children.
How must assets in bypass trust IRA be distributed to children?
Permalink Submitted by Robert Goldberg on Wed, 2008-09-10 10:22
It all depends on the language of the trust. Is the remainder interest going directly to the three children or is the gift the children staying in the trust to provide predator/creditor protection? If the IRA is staying in the trust care should be taken to assure each child gets separate account treatment to stretch over their individual lifetime.
Permalink Submitted by Stephan Cassaday on Wed, 2008-09-10 13:18
I believe that when a bypass trust is funded with an IRA distributions are made based on the life of the decedent (i.e second spouse). Look thorugh / conduit provisions are not allowed with bypass trusts
Custodian may allow sub trusts so preferences of individual children can be accomadated
Permalink Submitted by mk foss on Fri, 2008-09-12 02:30
I agree with Steve but let me explain it another way.
When the trust became the IRA beneficiary, RMDs were to be taken out based upon the age of the surviving spouse in the year after the original owner’s death. The factor goes down by 1.0 each year.
When the husband, as measuring life for the trust, passes away – the RMD is not affected. The amounts payable to the children are based on what is left of the factor determined the year after their mother died.
The custodian may allow them to transfer the funds to separate IRAs. Such a transfer neither increases or decreases the factor used to determine RMDs. It just allows the children to vary their distributions from each other. Penalties for not taking the full RMD will apply even if the beneficiaries are under 59.5 so they’ll need to use the correct factor.
Permalink Submitted by Alan Spross on Fri, 2008-09-12 04:00
Notwithstanding the downsides of leaving an IRA to a credit shelter trust, if the trust is qualified for look through and the sole primary beneficiary of the trust is the surviving spouse, I believe that recalculation applies, ie. the surviving spouse’s age on the RMD Table would be used each year rather than applying a 1.0 reduction each year.
When the surviving spouse passes, then the re calc would end and the 1.0 reduction would kick in.