Estate as IRA beneficiary
A client’s main asset is a $600,000 IRA. He is 72 years old. Upon his death, he wants 1/3 to go to his friend outright. 1/3 to fund a trust for his minor granddaughter until age 30. 1/3 to fund a trust for his adult son who is irresponsible and will get monthly income at the trustee’s discretion.
He’d like to maintain the IRA’s tax deferral for his friend if possible. But he doesn’t care about maintaining tax deferral for the pieces funding the 2 trusts.
Can he just name his estate as beneficiary if his Will spells things out as described above? Or what does he need to do to accomplish his wishes?
Thanks
Permalink Submitted by Jose Morales on Mon, 2010-11-15 18:29
Naming the estate as the beneficiary is not the best way to accomplish this. He should name his friend, and each seperate trust as the beneficiaries of the IRA just as he wishes.
Permalink Submitted by Alan Spross on Mon, 2010-11-15 19:10
When his friend is named along with the non individual trust beneficiaries, it will be imperative that his friend create a separate account prior to the end of the year following the year of death. If this is not done, it will cost the friend the ability to use his own life expectancy. Since the client will pass after the RBD, if the separate account is not created by the deadline the friend will have to use the remaining life expectancy of the decedent for the RMDs.
If his friend inherits the IRA proceeds through the estate (via will), the IRA would eventually be assigned to each beneficiary as part of the probate process, and the friend could not use his own life expectancy under any circumstances. But since the death is post RBD, the friend could use the decedent’s remaining life expectancy. At least by passing after the RBD, the 5 year rule is avoided.
Permalink Submitted by Joe Messina on Mon, 2010-11-15 19:17
Thank you both for your insight. It was extremely helpful.