Kiplinger 6/11 tax letter correct?
I did not believe that a trust beneficiary ( of an IRA ) would be disqualified for lack of distribution language. Per the Kiplinger Tax letter dated 6/11 :
” But the trust failed to state that the daughters* were required to receive all the distributions from the IRA, so they did not qualify as designated beneficiaries under the IRA” Result was the 5 year rule.
Is this something new? Thanks
* beneficiaries of the trust
Permalink Submitted by Alan Spross on Tue, 2010-06-15 19:14
Hopefully, Bruce Steiner will respond to this, and perhaps also has the Tax Letter.
My initial guess would be that what they describe as “lack of distribution language” is actually a deficiency in identifying all the potential beneficiaries. All potential beneficiaries must be identified because the oldest beneficiary is treated as the designated beneficiary for determining life expectancy. If all beneficiaries cannot be identified, it is possible that some contingent beneficiary could be 95 or 100. Likewise, if a non individual beneficiary is included as a trust beneficairy, the trust is not qualified and the trust is itself treated as a non individual IRA beneficiary. That would trigger the 5 year rule if the IRA owner passed prior to his RBD.
Permalink Submitted by Bruce Steiner on Tue, 2010-06-15 20:11
It’s hard to know without the context, but perhaps the author incorrectly believed that the trust had to require that the IRA distributions be paid out to the beneficiaries on a current basis.