RMD with Trust beneficiaries

Submitted by Peter Hall on Tue, 2011-02-15 15:37

Taxpayer dies at age 74 and has 3 IRA beneficiaries, all trusts. The RMD is calculated for each trust based on the age of the beneficiary of each trust? In a case where each trust only has one beneficiary, each trust’s RMD would be based on the beneficiary of each trust. It would not be based on the age of the oldest beneficiary, combining all three trust?



Submitted by Bruce Steiner on Tue, 2011-02-15 15:40

Review the documents to see whether each child is a beneficiary of the other children’s trusts. If a child dies without leaving any issue and without exercising his/her power of appointment, the balance of the trust might go to the other children’s trusts.

Submitted by mk foss on Tue, 2011-02-15 17:18

You should also check to see how many trusts were in place at the date of death. Often the decedent will have a trust that is split into a trust for each child upon the death of the owner. Some IRS rulings have required the use of the oldest beneficiaries life expectancy in that case.

Submitted by Alan Spross on Tue, 2011-02-15 17:43

I think the initial question and conclusion then is that there is a problem having 3 trusts as beneficiaries of a single IRA account because the separate account rules do not:
a) Apply to the trust beneficiaries within a single trust
or
b) Apply among the trusts themselves even if each trust was to create a separate inherited IRA account after IRA owners death.

Example: IRA has 3 trusts as beneficiaries, all of them qualified trusts. Trust A has a 60 YO beneficiary, B has a 40 year old, and C has a 15 YO. The RMD for all 3 of the trusts will have to use the 60 YO.
Accordingly, IRA accounts need to be created for each trust while owner is living.

Correct?

Submitted by Bruce Steiner on Tue, 2011-02-15 20:50

No. The IRA owner can leave x% of the IRA to the trustees of Trust A, y% of the IRA to the trustees of Trust B, and z% of the IRA to the trustees of Trust C. One IRA is sufficient. The trusts can be in the IRA owner’s Will, or in a separate trust instrument or instruments. But where does the balance of B’s trust go at his/her death? And where does the balance of C’s trust go at C’s death? The subsequent beneficiaries have to be taken into account in determining the oldest beneficiary of each trust.

Submitted by Stanley Peskind on Tue, 2017-11-14 17:12

Assume one person has Roth accounts are at two financial institutions, with the beneficiaries of each account being 50 per cent each to such person’s son and daughter, per stripes.  Is there any negative effect to changing such beneficiaries to an existing trust created for the son, and another existing trust created for the daughter, with each trust receiving 50 percent of the Roth accounts? 

Submitted by Alan - IRA critic on Tue, 2017-11-14 18:24

One risk is if either trust is not qualified for look through treatment, the stretch will be lost and the 5 year rule will apply. One of the requirements is providing complete trust info to the custodian by 10/31 of the year following owner’s death, so that would be for 2 trusts to each custodian. If this requirement is missed by the trustee of the trusts, the stretch will be lost even if the trusts were drafted perfectly. Also, the stretch for RMDs will be based on the oldest trust beneficiary separate inherited IRAs are not created for each trust. Is the expected balance of these IRAs large enough to justify the complexity here in the interest of creditor or spendthrift protection?

Submitted by Bruce Steiner on Fri, 2017-11-17 00:26

  • However, it should be a routine matter to add the trusts to receive the IRA benefits into the IRA owner’s Will.

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