IRA for special needs trust
Hello all. Thank you for your input.
The situation: Client, widower, age 80’s, and will likely pass this year. Has a net worth of $500,000 of which $160,000 is in an IRA. The rest in NQ and liquid.
He has four children; one of which is not (financially) competent and has an unfunded trust established, and that will be funded upon his death. Question: Can a beneficiary designated IRA be established that is in the trust’s name? If not, do you have a solution?
Albert Israel, Seattle
Permalink Submitted by Alan Spross on Mon, 2009-03-30 20:07
He could designate an SNT as the IRA beneficiary. The SNT should be qualified for look through treatment so that the SNT beneficiary can take RMDs over their individual life expectancy. If he does not want to leave the entire IRA to the SNT, it would be best to partition the IRA such that the SNT be the sole beneficiary of one of the IRAs.
According to PLR 2006 20025, a non spouse inherited IRA can also be transferred to a self settled SNT drafted after the IRA owner’s death. The SNT was ruled to be a grantor trust and the transfer of the IRA was not taxable. But a self settled SNT would also have to meet qualification requirements under Sec 408 for the RMD to be based on the beneficiary’s life expectancy. State laws need to be considered in drafting the SNT as well.
Permalink Submitted by Bruce Steiner on Wed, 2009-04-01 21:47
He can leave that child’s share (or any other child’s share) to him/her in trust rather than outright. For more on this, see my article on this subject in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf