Impact of Trust on Stretch IRA
I have a client who has a trust, which is listed as the contingent beneficiary on his IRA. His wife is the primary beneficiary. they have one son, who is essentially the beneficiary of the trust.
my question is, does naming the trust as the contingent beneficiary have any impact on their son’s ability to create a Stretch IRA upon the death of both parents?
Permalink Submitted by Alan Spross on Tue, 2011-07-05 22:16
If client passes first, the wife will inherit the IRA. The contingent beneficiary then disappears unless she disclaims or if she does not disclaim then names the trust as her own beneficiary.
If wife passes first, then the trust will inherit directly.
Either way, it is vital that the trust be qualified for look through treatment for the trust RMDs to use the life expectancy of the son. If NOT qualified, then the trust is subject to the 5 year rule if IRA owner dies prior to RBD and subject to the remaining life expectancy of the RMD owner if owner passes on or after the RBD.
Finally, you stated “son is essentially the beneficiary of the trust”. If that means that there are other trust beneficiaries that could inherit in conditions other than that of just successor beneficiaries of the son, and they are older than the son, then their life expectancy would be used for the trust RMD.
Permalink Submitted by Bruce Steiner on Tue, 2011-07-05 22:27
For more on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf .